Capital Economics notes that the gap between 10- and 20-year yields on Japanese Government Bonds has been expanding over the past six months, now near its widest in more than a decades. While 10-year yields have stayed anchored around 0.75%, bonds dating further out are reflecting some fears about the country's shifting political landscape, CapEcon says. "Next month's general election is likely to result in the return to power of the Liberal Democratic Party and increased political pressure on the Bank of Japan." LDP leaders have called for "unlimited easing" and an inflation target of up to 3% and weaker yen policy objective. This may stir up inflation expectations and perhaps lead to a greater chance at speeding up Japan's long-tepid recovery.
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