US JOLTS Report Helps Japan Avoid 30-Year Bond Auction Disaster but Risks Linger

TradingKey - A U.S. JOLTS job openings report signaling a weakening labor market brought relief to global bond investors. As long-term government bond yields in developed economies retreated, Japan’s critical stress test — the 30-year JGB auction — turned out less disastrous than feared.

Japan conducted its 30-year government bond auction on Thursday, September 4, with a bid-to-cover ratio of 3.31, close to the 12-month average of 3.38, indicating the auction passed without major incident.

For months, expectations of further rate hikes by the Bank of Japan have pushed yields on Japanese government bonds of all maturities higher. Political risks from July’s upper house election and concerns over fiscal policy direction intensified the trend. 

Adding to the pressure, recent global long-bond sell-offs in Europe and the U.S. raised fears over demand for Japan’s debt auction.

However, a U.S. Labor Department report on Wednesday cooled the global bond sell-off, as confidence in a September Fed rate cut strengthened. The U.S. July JOLTS job openings fell to 7.181 million, below the 7.382 million forecast, marking the lowest level since September 2024 and only the second time since late 2020 that it dipped below 7.2 million.

Saxo Markets analysts said the solid Japanese bond auction and the U.S. job data have provided modest relief to global bond markets after recent steep declines.

BNY Mellon strategists said the result of Japan’s 30-year auction was “not bad at all,” especially given widespread concerns over weak demand and global upward pressure on bond yields. The successful 10-year and 30-year auctions in September have created a favorable environment for the remainder of the month.

But Saxo Markets cautioned: this is tactical, not a shift in the long-term outlook. Long-term yields remain high, and a large volume of bond issuance still lies ahead.

Bloomberg noted that while overall demand improved, signs of investor caution remain — for example, the tail (the gap between the average price and the lowest accepted bid) widened from 0.15 to 0.18.

Beyond the commonly discussed fiscal concerns and rate hike risks, the recent resignation of key officials in Japan’s ruling party may force Prime Minister Shigeru Ishiba to face a leadership election. 

Attention is now on a potential early leadership vote on September 8. If Ishiba fails, Japan could see a new leader who supports fiscal expansion, further increasing pressure on the deficit.