Japan Bond Meltdown Sends Yields to Record High on Fiscal Fears-amtomessage

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2026-01-20

Japan Bond Meltdown Sends Yields to Record High on Fiscal Fears

(Bloomberg) — 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 hit 4%, the highest since its debut in 2007 and a first for any maturity of the nation’s sovereign debt in more than three decades. The yield on 30-year and 40-year bonds climbed more than 25 basis points. A lackluster auction of 20-year the tenor earlier underscored broader worries over government spending and inflation.

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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, and despite the market reaction, there has been no communication from the government to push back. From an investor’s perspective, it’s hard to see a scenario where buying bonds makes sense.”

Read: Japan’s Takaichi Calls Feb. 8 Election, Vows to Cut Sales Tax

The surge in yields marks a shift that’s been going on in Japan’s bond market, where years of ultra-low interest rates had kept yields well below those of global peers. The nation’s 30-year bond yield has surpassed Germany’s rate of that tenor, which sits at around 3.5%. Japan’s bonds are quoted using simple yields, while international market conventions typically use compound yields.

“The 40-year yield above 4% — its highest since its 2007 debut and significantly above super-long bunds — offers increasingly attractive value for both domestic and foreign long-term holders, especially on a currency-hedged basis where yield pickup is substantial,” said Masahiko Loo, senior fixed-income strategist at State Street Investment Management.

The spike in yields has made Japan’s bond market increasingly attractive for foreign investors, who now account for roughly 65% of monthly cash JGB transactions, according to Japan Securities Dealers Association data. Singapore Exchange Ltd. will introduce futures on longer-dated Japanese government bonds as trading in the world’s third-biggest debt market heats up.