Topline
A massive selling spree unexpectedly rocked Japan’s $7.6 trillion bond market on Tuesday after weeks of mounting doubts over the debt-ridden nation’s long-term stability, as inflation threatened to kill returns.
TOKYO, JAPAN – OCTOBER 4: Japanese PM Sanae Takaichi
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Key Facts
After decades of near-zero inflation, Japan is now experiencing substantial price pressures, making long-term bonds with low fixed payouts less attractive and pushing investors to sell at a discount, boosting bond yields.
When government bond yields rise, borrowing becomes more expensive, pushing up mortgage rates, corporate loans and the discount rates used to value stocks and real estate, signaling a lack of trust in the market.
Japanese 30- and 40-year bond yields jumped by over 25 basis points—their sharpest move since President Donald Trump’s “Liberation Day” tariffs shook global markets last year.
Japan’s 40-year bonds surpassed a 4% yield for the first time since they were introduced in 2007.
Earlier on Tuesday, a 20-year government bond auction failed to garner sufficient interest from investors, a red flag that exposed a lack of confidence.
The Japanese market’s panic is a sharp pivot from decades of perceived stability fueled by trust in the Bank of Japan and its ability to control yields.
Tangent
Japan’s annual inflation rate is around 3%, according to government data aggregator Trading Economics. The rate has consistently exceeded the Bank of Japan’s 2% target for years. The rise is mainly due to higher import costs and energy prices, driven in part by a weaker yen making imported goods more expensive, along with food and utility price increases.
What Could This Signal For The U.s.?
Japan’s bond turmoil is a warning sign for other heavily indebted countries—including the United States, as higher yields on Japanese bonds could push U.S. borrowing rates up by discouraging investors from buying U.S. bonds. Analysts have noted that the sell-off in Japanese bonds has fed into higher U.S. Treasury yields today, underscoring how stress in one major debt market can push global borrowing costs higher.
Big Number
203%. That’s Japan’s gross debt-to-GDP ratio as of late 2025, according to data from CEIC, a global macroeconomic database, compared to a ratio of 118.1% for the United States, according to the World Bank.
Crucial Quote
“I’d like everyone in the market to calm down,” Japan’s finance minister, Satsuki Katayama, told Bloomberg during the World Economic Forum in Davos on Tuesday.
Key Background
Bond yields in Japan have been climbing since Prime Minister Sanae Takaichi announced a $135 billion fiscal spending package in November. On Monday, Takaichi reiterated plans to suspend Japan’s 8% sales tax on food for two years and said she would dissolve parliament to hold an election on Feb. 8, seeking a mandate for what she described as “major policy change.” As yields climb, Takaichi has attempted to reassure both voters and financial markets that her plans for increased spending and tax cuts will not undermine Japan’s public finances. On Monday, she pledged to reduce Japan’s gross debt-to-GDP ratio, which went over 200% last year, making Japan one of the most indebted countries in the world.
Source: https://www.forbes.com/sites/martinadilicosa/2026/01/20/what-the-japanese-bond-crisis-could-mean-for-the-us/
