The Japanese government’s ongoing efforts to stimulate the economy through fiscal measures have been a major driving force behind recent market movements. In a recent report by UBS Securities and Treasury (UBS S&T), it was noted that there were significant moves in Japanese government bonds (JGBs) ahead of Prime Minister Takaichi’s announcement of the dissolution of the Lower House and call for a general election on February 8. Despite Takaichi’s high approval rating, the market continues to price in further fiscal stimulus concerns in both spot and overnight indices.

In particular, the front end of the curve saw higher yields in 1- and 2-year maturities, while the April meeting remained unchanged from the previous day. Interestingly, the 2-year 1-month forward rate is now pricing an all-time high of 1.62, indicating a strong expectation for further monetary easing.

Meanwhile, in the foreign exchange swaps market, funding traded stable in Asia with a slight decrease into the London session. The curve was offered at a better level in interbank markets, with receiving interest from local and paying in 1-year 1-year forward XCCY from the fast money community.

Overall, these developments highlight the ongoing impact of fiscal stimulus concerns on Japanese financial markets. As the February 8 election approaches, investors are likely to remain cautious and keep a close eye on any further announcements or developments that could influence the direction of the JGB market.