Japan’s 20-Year Bond Auction Remains Cautious – Is July the Turning Point for JGBs?

TradingKey - On Tuesday, June 24, Japan's Ministry of Finance conducted a 20-year government bond auction, where demand showed some improvement compared to previous auctions but still fell short of market expectations. Investors are now turning their attention to next week’s revised 30-year bond auction, which may offer clearer signals on long-term bond demand.

The auction results showed:

• Bid-to-cover ratio: 3.11, higher than the previous two auctions, but below the 12-month average of 3.31, and lower than what the market had hoped for.

Bloomberg economists noted that while this auction was better than May’s, it still failed to excite investors — especially given the Ministry of Finance’s plan to reduce bond issuance. The market had expected a stronger bid-to-cover ratio, potentially reaching 3.5.

It is worth recalling that last month’s turmoil in Japan’s long-term bond market was triggered by the weak 20-year bond auction in May, where the bid-to-cover ratio dropped to 2.5 — the lowest since 2012.

Concerns over Japan’s expanding fiscal deficit have repeatedly disrupted the country’s long-dated bond auctions. Last month, yields on 30-year and 40-year JGBs hit record highs, signaling growing investor skepticism toward Japanese debt.

BOJ and MOF Adjust Supply to Stabilize Market

In response to rising market pressures, the Bank of Japan (BOJ) announced at its June policy meeting that it would slow down its pace of reducing bond purchases starting from April 2026, as part of efforts to stabilize bond markets.

Meanwhile, Japan’s Ministry of Finance (MOF) has also taken action by cutting the planned issuance of long-term bonds by 10% this fiscal year, aiming to ease concerns over excessive supply.

What Comes Next: The 30-Year Bond Auction

MUFG Morgan Stanley strategists said the upcoming 30-year bond auction will be the first under the revised issuance plan. Many investors are watching closely to see whether it can attract stronger demand and signal a potential turning point for the Japanese bond market — possibly in July.

As uncertainty persists over the sustainability of Japan’s fiscal path and BOJ’s evolving monetary stance, the bond market remains fragile. Whether this new round of auctions can restore confidence will be key to determining if Japan’s bond yields have truly peaked — or if further volatility lies ahead.