Despite market anticipation of a near-term interest rate hike by the Bank of Japan, Japan’s 10-year government bond auction saw surprisingly strong demand on Tuesday. The bid-to-cover ratio reached 3.59, surpassing both previous auctions and the average for the past year. This positive response came after comments from Bank of Japan Governor Kazuo Ueda who signaled an increased likelihood of a rate hike later this month. He explained that the Bank would carefully assess potential benefits and drawbacks before taking action, but confirmed financial conditions would remain accommodative even post-rate hike. Currently, market expectations for a December rate hike stand at around 80%, with chances for January climbing above 90%. This shift contrasts with just a week ago, when the probability of a December rate hike was only 36% Furthermore, Japan’s Ministry of Finance is boosting short-term debt issuance to finance Prime Minister Sanae Takaichi’s economic stimulus package. The plan includes raising issuance for 2-year and 5-year bonds by 300 billion yen each and increasing treasury bill supply by 6.3 trillion yen.