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Japan Bond Meltdown Sends Yields to Record High



Japan Bond Meltdown Sends Yields to Record High

Michael Purves, Founder and CEO at Tallbacken Capital Advisors, discusses risk-off sentiment in European markets and investors’ reaction to Japan’s bond meltdown.

The slump in Japanese bonds deepened Tuesday, sending yields soaring to records as investors gave a thumbs down to Prime Minister Sanae Takaichi’s election pitch to cut taxes on food.
The 40-year rate rocketed past 4% to a fresh high since its debut in 2007 and a first for any maturity of the nation’s sovereign debt in more than three decades. The jump in 30- and 40-year yields of more than 25 basis points was the most since the aftermath of President Donald Trump’s Liberation Day tariffs onslaught in April last year.
A lackluster auction of 20-year earlier underscored broader worries over government spending and inflation. Treasuries, already under pressure on concern that tariffs may dim the allure of US assets, extended declines as the selloff in Japanese debt accelerated.
Since Takaichi took office in October, the 20- and 40-year yields have risen about 80 basis points. Investors are on guard for moves in Japan spilling over into global markets amid the prospect of continued volatility in Tokyo trading ahead of the snap poll Takaichi is scheduling for Feb. 8.
“There is no clear funding source for the consumption tax cut, and markets expect it to be financed through government bond issuance,” said Yuuki Fukumoto, senior financial researcher at NLI Research Institute. “The bond market is effectively the canary in the coal mine,” Fukumoto said, adding that “it’s hard to see a scenario where buying bonds makes sense.”
The Japanese government played down the sudden meltdown.
“Long-term yields move on various factors and are determined in the market so I’ll refrain from commenting on every move, but we’re keeping a close eye on markets,” said spokesperson Minoru Kihara. “We’ll make sure to gain market trust through a sustainable fiscal policy, making our economy strong and bringing down the debt-to-GDP ratio.”
Katayama said the government will consider financing options for the tax cut measure, including the reduction of redundant spending and the reviewing of tax exemptions. She said that the measure would not require additional bond issuance, echoing Takaichi’s remark earlier this week.
The finance minister also pushed back against concerns about weakening demand for JGBs. She said recent government bond auctions had proceeded smoothly, adding that she is confident the government can fully execute its issuance plans as intended going forward.
“We have taken steps to stabilize the market, and I can assure you that we will continue to do so,” Katayama said. 
The weak currency is another source of pressure for the finance chief. The yen was trading at 157.96 per dollar, after hitting an 18-month low last week when reports of an early election first emerged. 
Katayama reiterated that an agreement with the US allows for market intervention to cope with sudden currency moves, referring to a September joint statement between Bessent and her predecessor Katsunobu Kato. Katayama also met Bessent in Washington last week, where the two shared concerns over the yen’s one-way weakening.

“Based on that understanding, intervention is of course one of the available options, and there are various ways to carry it out,” she said. “In that sense, all options are on the table — nothing is being ruled out.”
Katayama insisted that nervy movements in the bond market do not reflect the current state and trajectory of Japan’s economy. She said Japan’s broader economic outlook remains solid, supported by Takaichi’s policies, and continues to attract investors from around the world.
“I met with the heads of four of the world’s top financial institutions in the US and elsewhere, and they were all very bullish about allocating capital to the Japanese market,” Katayama said. “While they are not completely unconcerned about fluctuations in JGB yields, their basic view is that Japan is a buy.”

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37 Comments

  3. @selmonpogba6080 on

    ‘We’re importing this’!! Really? Really? Don’t trust this man, name is Micheal Purves. He says he’s the economy is pretty good Also he said, stock pickers? What stocks are worth buying 😂🤣

  4. @frankkarenjacobs4509 on

    Thanks to the openly corrupt and incompetent — Trump and his Administration — 1) The Market Leaders (mag 7) are dropping 2) Trump and his Administration are actively threatening militarily and economically both the EU (Greenland) & Canada over critical matters of national sovereignty. The Trump Administration is actively shredding a political, economic, military alliance that everyone has relied on since WWII. 3) The Japan carry trade continues to get weaker as Japanese long term rates go higher.. My view is the wealth destruction of dollar dominated assets has just really gotten started. Time to get your investments really really defensive.. Thanks to the openly corrupt and incompetent –Trump and his Administration we are getting more isolated every day…

  6. @Jameslast-j7r on

    The shock over the arrival of a crisis feels manufactured. You haven’t seen anything yet. The notion that the Fed has real control is a fiction. Foreign investors set your bond yields

  11. @wbj2000 on

    Money is leaving government debt and moving into gold and silver. Who can blame them. US debt is being monetized.

  12. @freakmil1537 on

    Japan is having a national election next month, and most parties are chanting tax cuts. If you have purchased Japanese Government Bonds, SELL IT NOW! The interest rate is going up whatever the result is. If you plan to trade Japanese Government Bonds, there is nothing to do but SHORT and even a monkey can win this phase!

  24. @cyberslim7955 on

    Since the mid 1980, the global GDP is growing faster than the US, and then with China since the early 2000 much much faster, including since the pandemic. So where is the US "exceptionalism" if there is nothing but the opposite ?

  25. @chemicalaman717 on

    That chart shows weak daily correlation, not causality.
    FX is driven by USD shocks, risk sentiment, hedging flows, and positioning.
    The Yen isn’t just a “yield currency” anymore — it’s a balance-sheet buffer.
    Narrative ≠ evidence.

  26. @chemicalaman717 on

    Japan’s ultra-long JGB volatility is starting to leak into the global bond market.
    It’s not about a Japan “default” story — it’s about term premium and cross-border balance-sheet adjustments pushing long-end yields higher, even in the US.
    The scary part is how unusually low US rate volatility has been.

  28. @chemicalaman717 on

    As JGB yields become attractive enough to stand as viable investment targets, Japanese financial institutions see less need to hold U.S. Treasuries while paying high currency hedging costs. Furthermore, as JGBs are re-evaluated as "high-quality collateral" within the domestic market, it could trigger structural shifts in FX funding and repo markets, potentially spilling over into the supply-demand dynamics of U.S. interest rates.

  29. @chemicalaman717 on

    The current low in the MOVE index should not be mistaken for "stability"; rather, it should be viewed as a period of "volatility compression" or "stored energy." The moment the trading range breaks, mechanical reactions—such as gamma hedging and automated risk management protocols—could trigger a chain reaction, risking an accelerated surge in interest rates.

  30. @chemicalaman717 on

    In a regime driven by a rising term premium, we face the risk of a "correlation breakdown," where stock prices fall and yields rise (bond prices fall) simultaneously. In such a scenario, traditional hedges like VIX calls or index puts may be less effective than assets with lower correlation, such as Gold, which functions as a truer form of "insurance."

  31. @chemicalaman717 on

    The Phenomenon (現象): JGB ultra-long yields (30/40Y) have entered a "stress zone." In a liquidity-thin environment, this can lead to "price gaps" and erratic moves.
    The Structure (構造): This is not just about yield differentials; it’s a unwinding of the "Japan-to-US" capital flow driven by currency hedge costs and ALM requirements.

  33. @getahead5319 on

    The "Lost Thirty Years" are, without question, primarily attributable to the ossified policy failures of the government and the "Kasumigaseki (equivalent to the Washington Belt-Way Circle)" bureaucracy, which preside over the nation’s economic, fiscal, and monetary spheres. Throughout these three decades, Japan’s growth has remained as stagnant as that of a developing nation ravaged by conflict.

    Under the shadow of an ageing society, the Ministry of Finance’s dogged commitment to austerity and tax increases has stifled essential investment and, instead, eroded the nation’s accumulated wealth. For too long, Japan’s politicians and bureaucrats have failed to project a positive narrative to the world (not only to the BBC); even the Ministry’s own digital presence serves as little more than a repository for inscrutable justifications of fiscal contraction.

    In truth, Japan’s current fiscal health, when measured against GDP, remains robust among the G7 nations. Under the stewardship of a new administration and its revitalised economic agenda, a national resurgence is not merely a hope, but a certainty. Should investors blindly wager upon the current ascent of interest rates as a definitive trend within the JGB market, they shall, without doubt, incur a most severe and humbling retribution.　Good luck with that, mate. 😂

  34. @soki9063 on

    Many people in Europe and the West still seem to believe that Japan is driven by the same economic indicators.”