JGB Price Movements on December 25, 2025: Inflation Data and Issuance Plans Impact

This analysis is based on the Wall Street Journal report [5] published on December 25, 2025, which reported JGB prices edging higher following Tokyo inflation data release. Tokyo core inflation (excluding fresh food) for December 2025 was 2.3% year-on-year (YoY), slower than market expectations [1]. As Tokyo inflation is a leading indicator for national inflation in Japan, this data softened the case for the BOJ to implement quick interest rate hikes, supporting bond prices.

Contextualizing recent policy actions, the BOJ had raised interest rates to a 30-year high of 0.75% the previous week, leading to sharp rises in shorter-dated bond yields on expectations of further hikes [2]. Compounding the price support, news emerged that Japan will likely reduce the issuance of super-long-dated government bonds (20-30 year) in the next fiscal year, easing oversupply concerns [2]. This dual support led to mixed yield movements across maturities: super-long JGBs (20-30 year) saw significant yield declines (30-year: -3 bps to 3.395%; 20-year: -2 bps to 2.965%), while shorter-dated bonds (2-10 year) experienced slight yield increases (10-year: +0.5 bps to 2.05%; 5-year: +1 bp to 1.500%; 2-year: +1 bp to 1.11%) [2].

Medium- to long-term factors include persistent inflation (above the BOJ’s 2% target for over three years) [3], BOJ Governor Kazuo Ueda’s reaffirmation of potential further rate hikes aligned with economic and price improvements [4], and Prime Minister Sanae Takaichi’s planned record ¥122 trillion budget for FY26, which could increase overall bond supply despite the super-long issuance cut [3].

1. Dual Drivers of Yield Movements
   : The combination of slower inflation data (softening near-term rate hike expectations) and the super-long issuance cut (easing supply pressures) created mixed yield dynamics across maturities, with longer-dated bonds outperforming shorter ones.
2. BOJ Policy Balance
   : Despite the inflation slowdown, the BOJ’s recent rate hike and guidance for further tightening indicate a commitment to normalizing monetary policy, keeping shorter-dated yields elevated.
3. Fiscal-Monetary Interaction
   : The planned record budget adds complexity, as increased overall bond supply could counteract the positive impact of the super-long issuance cut on JGB markets.

• Risks
  :
  • The upcoming BOJ Policy Meeting (January 22-23) could bring further rate hikes, impacting JGB yields [4].
  • Yen intervention risk remains high due to excessive weakness, which could affect bond markets [2].
  • The record FY26 budget may increase overall bond supply, putting upward pressure on yields [3].
  • Sustained inflation above the 2% target could prompt more aggressive BOJ action [3].
• Opportunities
  :
  • The planned cut in super-long JGB issuance may continue to support prices in that segment [2].
  • Slower inflation could delay aggressive rate hikes, providing short-term stability.

• Tokyo Inflation
  : December 2025 core inflation (excluding fresh food) was 2.3% YoY, slower than expected [1].
• JGB Yield Movements
  : Mixed across maturities, with super-long yields down significantly and shorter yields slightly up [2].
• BOJ Context
  : Recently raised rates to 0.75% (30-year high) and signaled further hikes [2][4].
• Issuance Plans
  : Japan likely to cut super-long (20-30 year) JGB issuance next fiscal year [2].
• Fiscal Policy
  : Planned ¥122 trillion FY26 budget (record high) could increase overall bond supply [3].