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STRONG 30YR JGB AUCTION YESTERDAY MEANS RELIEF FOR JPY

ADMIN || 5th December 2025

Yesterday’s blowout 30-year JGB sale is a wake-up call for complacent yen bears as it has the fingerprints of Japan’s life insurer participation all over it. Long duration bonds have reached yield levels which are offering relative value, just as hedging for a stronger yen is running near a 13-year low.

There was a huge 4.04 bid-to-cover ratio for Thursday’s auction. That is the highest demand since 2019, with the low price well above the pre-sale forecast, which is another positive signal. Moreover, Nomura was the biggest buyer, which is typically a sign of long-term investors getting involved.

The read across is that it wouldn’t take much for life insurers to shift more funds back into yen fixed-income products and give the currency a sudden boost.

Should that coincide with BOJ Governor Ueda surprising investors with a hawkish rate hike when the consensus points to a one-and-done type move at the upcoming policy meeting, that would likely trigger yen short covering. Indeed, with 2-year JGBs reaching 1%, that provides Ueda cover with pushing toward a neutral rate quicker than markets are pricing.

USD/JPY option volatility and skews are priced for a continuation of sideways trading, which historically has been just the moment to brace for the yen to burst out of its comfort zone.

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