Japan 20-year bond yield hits record high on snap election prospects

By Rocky Swift

TOKYO, Jan 13 (Reuters) - Japanese government bond (JGB) yields rose sharply on Tuesday on expectations that a potential snap election could hand Prime Minister Sanae Takaichi a mandate to pursue aggressive fiscal stimulus.

JGBs fell sharply as domestic markets opened after a holiday-lengthened weekend and reacted to reports of the early vote that triggered declines in the yen.

The 20-year JGB yield JP20YTN=JBTC rose 8 basis points (bps) to 3.135%, a record high. The 30-year yield JP30YTN=JBTC gained 9.5 bps to 3.495%.

The benchmark 10-year yield JP10YTN=JBTC added 4.5 bps to 2.135%, the highest since February 1999.

Bond yields move inversely to prices.

Long-term yields have climbed sharply since early November, hitting successive records, on concerns over the size of Takaichi's stimulus plan.

Short-term yields faced upward pressure as the Bank of Japan raised policy rates and signalled that more hikes were on the way.

Domestic media reported that Takaichi was considering a vote in February, a possibility reinforced by comments from the head of her party's coalition partner on Sunday.

"If concerns about fiscal expansion grow during the campaign, long-term yields could tend to come under upward pressure, at least temporarily," Barclays economists Naohiko Baba and Takashi Onoda said.

"That said, a weaker JPY and rising long-term yields could end up restraining the Takaichi administration's proactive fiscal policy."

The five-year yield JP5YTN=JBTC rose 4 bps to 1.595%.