Long-term bonds lead JGB rally on PM Takaichi's 'responsible' stimulus pledge

By Rocky Swift

TOKYO, Feb 12 (Reuters) - Long-term bonds led a rally in Japanese government debt on Thursday, as investors were reassured by Prime Minister Sanae Takaichi's pledge to pursue "responsible" stimulus following her decisive electoral win.

The yield on the 40-year Japanese government bond (JGB), JP40YTN=JBTC, the market's longest tenor, fell 8 basis points (bps) to 3.645%. The 30-year yield JP30YTN=JBTC sank 7.5 bps to 3.05%. Yields move inversely to bond prices.

Since Takaichi began her ascent to become Japan's first female premier in October, the "Takaichi trade" has pushed domestic shares to successive record highs while spurring declines in JGBs and the yen.

After a historic lower house victory for her Liberal Democratic Party, Takaichi reiterated on Monday that she was committed to "responsible, proactive fiscal policy." The leader is sensitive to how markets react to her decisions, particularly yen and JGB yield moves, two sources told Reuters.

"The bond market seems to be operating under the premise of realistic fiscal policy, while the stock market appears to be operating under the premise of expansionary fiscal policy," Ataru Okumura, a senior rates strategist at SMBC Nikko Securities, said in a client note. "It is highly likely that one of these assumptions will ultimately prove incorrect, raising concerns that significant volatility may emerge."

The benchmark 10-year JGB yield JP10YTN=JBTC fell 3.5 bps to 2.2%. The 20-year yield JP20YTN=JBTC slid 5.5 bps to 3.050%.

The two-year yield JP2YTN=JBTC, the one most sensitive to Bank of Japan's policy rates, decreased 1 bp to 1.29%. The five-year yield JP5YTN=JBTC fell 2 bps to 1.680%.