JGBs fall in price terms in the morning Tokyo session amid worries over potential worsening of Japan's fiscal situation. Mitsubishi UFJ Morgan Stanley Securities' fixed income strategists note a local media report stating that the government plans to cut the consumption tax on food items to 1% starting April 2027, as part of a sales tax reduction limited to two years. The move is seen as a response to rising living costs but raises questions about revenue sustainability.

The report indicates that PM Takaichi is likely to instruct the Liberal Democratic Party to begin internal procedures, possibly as early as Thursday. However, the strategists note that the funding sources for this remain unclear, adding to market uncertainty about the country's debt trajectory.

The 30-year JGB yield is up 1.5 bps at 3.980%, reflecting investor concerns about the fiscal outlook. Higher yields signal lower bond prices as traders price in potential increased issuance to cover the tax cut shortfall.