The Japanese bond market quietly rebounds as overseas funds seize the opportunity to buy during the sharp decline.

⑴ Japanese government bonds strengthened across the board on Friday, with the 10-year cash bond yield falling by 3.5 basis points to 2.105%, hitting a new low since January 9. The futures market performed even more strongly, with the main contract once surging to an intraday high of 132.81. Market participants pointed out that the current rise is partly due to a weakening of selling momentum. ⑵ Last month's sharp sell-off was triggered by tax cut pledges, but Prime Minister Sanae Takaichi now seems intent on avoiding another bond market turmoil. Notably, according to the latest data from the Japan Securities Dealers Association, overseas accounts and major banks did not expand fiscal concerns during last month's yield surge, but instead saw it as a golden buying opportunity. ⑶ Overseas funds showed a comprehensive net buying trend in January. Data shows that foreign investors made a net purchase of 2.17 trillion yen in super-long-term government bonds, the largest scale since April last year; net purchases of long-term government bonds reached 1.59 trillion yen, and net purchases of medium-term government bonds were 2.27 trillion yen. Major banks also made a net purchase of 1.33 trillion yen in long-term government bonds, but for the third consecutive month, they were net sellers of medium-term government bonds. ⑷ Insurance institutions and regional banks chose to act contrarily, becoming net sellers of super-long-term government bonds. This divergence reflects significant differences in how different investors assess duration risk and yield levels. ⑸ In today's session, the 20-year government bond sell orders from central public accounts in the morning were smoothly absorbed, indicating strong market willingness to take on supply. In the afternoon, old bonds with maturities between 14 and 18 years received buying support, with the yield on JL184 maturing in March 2043 once falling by 7 basis points compared to the previous day. ⑹ Liquidity factors amplified price fluctuations during certain periods. The trading volume of the new 10-year bond JB381 was only 8 billion yen in the morning, and traders said its yield falling below 2.10% reflected more of a price amplification effect under thin trading, rather than a trend breakthrough. Subsequently, the yield rebounded and remained above 2.10%. ⑺ The interest rate market’s pricing of Bank of Japan policy remained stable. The probability of a rate hike at the March meeting stayed at 12.5%, while the probability for the April meeting rose to 69.5%, a slight increase from the previous day. The Nikkei 225 index fell by 642 points on the day, a decline of 1.12%, closing at 56,825 points. The yen exchange rate remained near 155.17.