Ultra-Long Term Interest Rates Remain Stable After Prime Minister’s Resignation, Easing “Takaichi Risk” Concerns
TOKYO, April 8 – Despite recent political upheaval, ultra-long-term interest rates in Japan have not surged following Prime Minister Fumio Kishida’s resignation, prompting some market analysts to suggest the previously feared “Takaichi risk” may have been overstated. Concerns centered around potential policy shifts under a different leadership, specifically referencing economic policy proposals associated with Sanae Takaichi, a prominent figure within the Liberal Democratic Party.The stability offers a temporary reprieve to Japanese financial institutions, particularly life insurance companies, grappling with unrealized losses on long-term government bonds and stock holdings amid rising interest rates. Market participants had braced for a potential spike in 30-year interest rates, perhaps revisiting record highs, should a leader with markedly different economic views assume office. Though,the current calm suggests those fears were premature.
Ohara of Sumitomo Life insurance highlighted an anticipated increase in pressure for “end-of-year bond selling” beginning in September, as life insurers seek to mitigate losses on ultra-long-term government bonds and Japanese stocks impacted by rising rates and stock prices. This selling pressure is expected to persist through late September, as companies attempt to adjust portfolios before the fiscal year-end.
A source within the market, speaking on condition of anonymity, warned in early April that preparations should be made for a scenario mirroring previous market reactions, specifically referencing the potential impact of Takaichi’s policies. Despite this earlier caution, the market’s reaction to the prime minister’s departure has been muted, at least in the ultra-long-term interest rate sector.
