Japan PM Takaichi must face bond investors before winning over voters

By Kevin Buckland

TOKYO, Feb 2 (Reuters) - Japanese Prime Minister Sanae Takaichi faces a important markets trial successful the last run-up to a drawback predetermination this play wherever she is hoping a decisive triumph volition springiness her a mandate for expansionary fiscal policy.

The ​finance ministry volition auction immoderate 700 cardinal yen ($4.5 billion) of 30-year authorities bonds connected Thursday, 3 days earlier polls open.

It's a ‌tenor that has been hyper-sensitive to worries astir a loosening of fiscal restraint, suffering a rout past period arsenic investors balked astatine Takaichi's pledge to suspend the depletion taxation connected ‌food.

Auctions person been a peculiar flashpoint for investors expressing interest astir the authorities of Japan's finances, which are the worst successful the developed satellite with indebtedness totalling 230% of GDP.

In 4 of the past 5 30-year enslaved sales, yields spiked to caller grounds highs either successful the run-up to oregon instantly pursuing the auction results.

That includes the crisp selloff connected October 7, which came conscionable 3 days aft Takaichi - known arsenic a fiscal dove and acolyte of ⁠the "Abenomics" policies of precocious premier Shinzo Abe - won the ‌ruling Liberal Democratic Party's enactment contest, mounting her up to go premier minister.

Bond yields determination inversely to prices.

"This auction fundamentally serves arsenic a referendum connected however investors consciousness astir the fiscal risks from the election," said Shoki Omori, ‍chief table strategist astatine Mizuho Securities.

"I would accidental request astatine the auction is apt to beryllium connected the anemic side, due to the fact that investors are going to beryllium cautious. And they person a close to be," Omori added, suggesting that yields could spike aft the auction.

The worries are evident successful the word premium - the compensation investors request for ​holding bonds implicit a longer clip span. Omori said helium calculates the 30-year word premium stands astatine 2.8 percent points, "way steeper" than the ‌1.6 percent points for 10-year JGBs.

This volition beryllium the archetypal 30-year indebtedness merchantability since Takaichi called the drawback predetermination connected January 19 and pledged the income taxation suspension - and enslaved markets are apt to beryllium connected borderline aft the latest paper polls suggested her LDP is poised for a landslide victory.

An auction of 10-year notes connected Tuesday volition connection an adjacent earlier denotation of capitalist appetite for authorities debt, though the tenor is much liquid and draws a wider scope of investors truthful tends to beryllium little volatile.

The benchmark 30-year JGB output hovered astatine 3.63% connected Monday - down from ⁠the grounds precocious of 3.46% connected January 20, but inactive up astir fractional a ​percentage constituent from wherever it was astatine the commencement of October.