JGB Strategy

13 October 2026 Fixed Income | Japan Strategy Weekly

Rates Strategy Weekly "US midterm elections and yen rates"

Noriatsu Tanji Chief Bond Strategist This report is a translation of excerpts from a Japanese-language report published on 9 October 2026 and is based on information available at that time.

Yuhi Kawano Market Analyst (1) US midterm elections and yen rates The November midterm elections in the US are likely to have a limited market impact if they produce a divided government, as per the consensus. However, the yen rates curve could come under steepening pressure if Republicans retain both houses of Congress and preserve the “red trifecta.”

(2) Technical impact of reports on supplementary budget The second supplementary budget that has been reported is expected to be limited largely to disaster-relief measures and should have little impact on the initial budget for FY2027 or future JGB issuance plans. That said, we think it could weigh on market sentiment given the Takaichi administration’s pledge not to compile any more autumn supplementary budgets.

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. Please refer to pages 26 - 27 of this research report for important disclosure information, analyst certification, and disclaimer.

(1) US midterm elections and yen rates The US midterm elections will take place on 3 November, less than a month from now. The outcome could have a material impact on the market, with implications for yen rates. We review the current state of the race and consider the potential impact on the yen rates market.

Chart 1.1. Betting-market-implied probabilities for midterm election results (Senate, left; House, right) (%) (%) 70 100 Democrats Republicans Democrats Republicans 65 90

30 0 Apr-26 May-26 Jun-26 Jul-26 Aug-26 Sep-26 Oct-26 Apr-26 May-26 Jun-26 Jul-26 Aug-26 Sep-26 Oct-26

Source: Compiled by Mizuho Securities Fixed Income Research from Bloomberg data

First, we review the likely outcome of the election. Betting-market probabilities currently suggest the Democrats will win control of both the Senate and the House (Chart 1.1). They were already viewed as favorites to win the House, and recently they have moved ahead in the Senate as well. Markets therefore expect the Democrats to acquire a majority in at least one chamber of Congress, most likely the House, resulting in a divided government.

Since the impact on the market would probably be largest if the Republicans managed to retain both chambers and preserve the so-called red trifecta, this report focuses primarily on the market implications of such a scenario. If the Democrats win either house of Congress and produce a divided government, we would broadly expect the opposite market reaction, although with smaller price moves.

Charts 1.2–1.4 show movements in equities (S&P 500), interest rates (10y UST yield), and exchange rates (US Dollar Index) around previous elections involving Mr. Trump. In the two instances where Mr. Trump triumphed and the Republicans won the White House and both houses of Congress—the 2016 and 2024 presidential elections—equities rose, interest rates moved higher, and the dollar strengthened. In the 2018 midterm elections under Mr. Trump, where the Democrats won control of the House and produced a divided government, the reaction in the forex market was limited, but equities and interest rates fell. Finally, the dollar weakened following Mr. Trump’s defeat in the 2020 presidential election.