JGB yields slide as AI and geopolitics spur haven bid

Japanese government bond yields fell to a six-week low on Thursday as investors increased allocations to safe-haven assets.

Shorter- and longer-dated maturities also participated in the rally. The 5-year yield dipped 1.5 basis points to 2.285%, its lowest level since September 18, while the 30-year yield dropped 2.5 basis points to 3.895%, its lowest since August 6. These broad-based declines underscored the strength of safe-haven flows into the JGB market.

A global selloff in technology and artificial intelligence-related stocks helped drive demand for Japanese government bonds. As investors trimmed exposure to high-growth sectors, domestic bonds were favored as a lower-risk alternative. In Tokyo, profit-taking and concerns over the prospects for AI-related businesses weighed on equity sentiment.

The tech-heavy Nikkei index, which opened higher, reversed course and finished the session below the 63,000 level for the first time since July. Market participants pointed to uncertainty over whether large-scale investments in AI infrastructure can be sustained beyond 2027, prompting some investors to lock in recent gains.

Safe-haven demand for JGBs was reinforced by geopolitical tensions and fiscal concerns abroad. Reuters reported a Houthi drone attack on a Saudi oil field that caused multiple casualties, adding to worries about a potential escalation of conflict in the Middle East.

Investors also monitored domestic fiscal signals. Concerns over Japan’s own fiscal outlook eased after Prime Minister Sanae Takaichi repeatedly assured markets that the government would avoid increasing the debt burden despite plans to cut taxes on food. These assurances helped stabilize sentiment around Japan’s public finances even as global risks remained elevated.

With yields falling, markets stayed focused on the Bank of Japan’s policy meeting scheduled for next week. Interest rates are widely expected to be left unchanged at that gathering, while some expectations point to a possible quarter-point hike at the following meeting in December amid persistent inflationary pressures. Traders judged that large shifts in rate-hike expectations before the upcoming meeting were unlikely.

Recent comments from BOJ officials have reinforced the prospect of gradual policy normalization. Deputy Governor Ryozo Himino said underlying inflation was approaching the central bank’s 2% target and cautioned against delaying policy adjustments, echoing hawkish remarks by Governor Kazuo Ueda earlier in the week. Against this backdrop, investors weighed how ongoing safe-haven flows and inflation trends might interact with the BOJ’s next moves.