Japan Bond Meltdown Sends Yields to Record High

Описание: 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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