Morgan Stanley Strategists Maintain Bullish Outlook on Mid-Term Japanese Bonds

Despite recent changes in Japan’s fiscal landscape, Morgan Stanley MUFG strategists Koichi Sugisaki and Hiromu Uezato remain optimistic about the mid-term segment of the Japanese government bond yield curve. Their confidence stems from potential shifts in the US economic outlook, which could lead to a decrease in the Bank of Japan’s terminal rate expectations. However, despite these improvements, they are cautious about long-term bonds, acknowledging that investment plans from Japan’s major life insurance companies for the second half of 2025 fiscal year suggest they are unlikely to provide sustained demand for ultra-long-term Japanese government bonds.