3%之战：日本新收益率机制应对方案

Japan Japan Macro &Fixed IncomeStrategy The Battle for 3%: Navigating Japan'sNew Yield Regime Chief Economist+81-3-6730-0683Shoki Omori defense line for fiscal credibility as it is the assumed interest rate in thegovernment's initial FY2026 budget. This report analyzes the economicbackground and market strategy surroundingthe"battlefor3%." Strategist+81-3-6730-0835 TheSignificanceof3%andtheGovernment'sResponse:An interestraterise above the3% assumed rate could cast doubt on the government'sability to control its finances and risk forcing an unusual supplementarybudget.Inresponseto risingyields,thegovernmenthas signaledits strongawarenessof3%asaceilingbysuggestingrevisionstoitsHonebutopolicyand alluding to increased domestic investment bytheGPIF. TheNature oftheJGBMarket:Supply-Demand, Not Macro:Theprimarydriverof JGBprices todayis notmacrofundamentals,but supply-demandimbalances stemming from the fact that the BoJ holds abouthalf of theoutstanding stock, leaving a very thin free float. Consequently,the mostmeaningfulpolicyoptionsavailabletothegovernment-suchasissuanceshortening,buybacks,andad-hocBoJpurchases-are all operationsthatdirectlytarget supply and demand. Base Caseisa"Bear-Flattening"Regime:Thegovernment'spolicytoolkitaims to reduce the supply of long- and super-long-term bonds, while itsacceptanceof BoJpolicynormalizationappliesupward pressure on short-term rates.The base case scenario is therefore a"bear-flattening"regime,where short-term yields rise while the rise in long-term yields is capped. Trading Strategy and Risks: In this environment, trades such as 5s20sflatteners can be effective.The main risk is a"tail scenario" where thegovernment's actionsareperceived as fiscaldominance,leadingto a lossof credibility and a sharp rise in long-term yields (a twist-steepening).Investors should focus notonthe3%level itself,but onthe"footprints"ofsupply-demand policies, such as auction results. JapanMacro&FixedIncomeStrategy Scenarios Japan's10-yeargovernmentbond(JGB)yieldwasrecentlyseenapproaching3%, the assumed interest rate in the government's initial budget for fiscal year 2026.actual market rate, making it extremely rare for the latter to exceed it. In otherwords,a 10-year JGB yield surpassing 3% would signify an interest rate riseunforeseenbythegovernment.Thismakesthe3%levelacriticaldefenselineforthegovernment,where market confidence in the sustainability of public finances istested.This reportanalyzes thepolicy options availabletothe government and theBank of Japan (BoJ)across short,medium,and long-term horizons shouldthe10-year yield approach 3% again,and considers their respective impacts on themarket. The Significanceofthe"3%Assumed Interest Rate"The assumed long-term interest rate in the initial FY2026 budgetis set at 3.0%. In budget formulation, it is customary for the assumed rate to be set conservatively(high)to actasa buffer,preventing debtservicing costsfrom exceedingthebudget. Lookingback,in fiscal year 2025, the10-year JGB yield briefly surpassed the then-assumed rate of 2.0% during the fourth quarter (January-March 2026, Figure 1).However,asthisoccurredattheendofthefiscalyearafterasupplementarybudgettheassumption,andtheunusual stepof a supplementarybudgettoincreasedebtservicingcostswas avoided. Should the average annual interest rate exceed the government's assumption,servicing costs,it would carryameaningfargreaterthanasimplebudgetoverrunIt could risk givingthemarketthe impression thatthegovernment cannotcontrolinterest ratetrends,severelydamagingconfidenceinfiscal sustainability. TheGovernment'sInitialResponsetotheApproachof3% Asthe10-year JGByield neared3%,thegovernmentclearlysignaled its stancetocurb the rise in interest rates. Revision of the"Honebuto"(Basic Policy on Economic and Fiscal language that could be interpreted as limiting the BoJ's independence init was reported that the draft was being considered for revision towardwording that emphasizes the BoJ's independence. This is thought to be amove aimed atalleviating concerns thatmonetarypolicymightfall behindthe curve, thereby helping to suppress long-term interest rates.Mention of the GPIF's Role: On July 10,2026, Finance Minister Satsuki KatayamamentionedthepossibilityoftheGovernmentPensionInvestment Fund (GPIF)increasing its domestic investments.This createdexpectations of direct demand for JGBs from the GPIF, oneof theworld'slargestpensionfunds,andhadtheeffectofputtingdownwardpressureoninterestrates. We analyze these moves as signals to the market that the government is stronglyconscious of"3% on the 10-year JGB yield"as an immediate upper limit. AnalysisofFuturePolicyOptionsWhat additional potential measures could the government take if, despite these initial responses,the10-year JGByield onceagainapproaches or surpasses3%?Below, we organize a range of feasible options by time frame. (Note:The following options are presented to be comprehensive and do notrepresentanendorsementorrecommendationofa