A sharp decline in prices rocked Japan’s government debt market on Tuesday, driving yields on the longest maturities to unprecedented heights as investors baulked at Prime Minister Sanae Takaichi’s proposals to slash food consumption taxes, exacerbating the nation’s strained public finances.
The 40-year Japanese government bond yield soared past 4 per cent for the first time since its introduction nearly two decades ago, gaining more than 5 basis points in one session. The 20-year yield advanced nearly 9 basis points to 3.35 per cent, while the 10-year benchmark surged over 6 basis points to 2.3 per cent—its highest since 1999.
Takaichi announced on Monday her plan to dissolve parliament this Friday and hold a general election on 8 February, spotlighting economic strategy amid inflation and budget strains.
“Ultra‑long JGB yields are being pushed higher not only by the structural supply–demand imbalance but also by a fresh re-pricing of term and risk premium as markets absorb a more expansionary fiscal stance and persistent inflation,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management.
“This has revived the classic ‘Takaichi trade’ dynamic of stronger Nikkei, weaker JGBs and yen,” Loo told CNBC.
Loo sees technical drivers and sentiment fuelling the moves, not systemic issues, with a steep yield curve likely through mid-year. Crédit Agricole analysts warn of larger deficits as Takaichi rejects the “shackles of excessive austerity,” a pattern since her autumn rise when super-long yields doubled.
The sell-off lifted U.S. 30-year Treasury yields and eclipsed Germany’s equivalent, with volatility expected until the February poll.