JGB Meltdown: Yields Spike as Markets Reject 'Takaichi Economics'

TOKYO – The calmness of the Japanese fixed-income market was shattered on Tuesday as a violent sell-off in Japanese Government Bonds (JGBs) sent yields to multi-year highs. The move signals a growing revolt by bond vigilantes against the fiscal roadmap of Prime Minister Sanae Takaichi.

• 10-year JGB yield jumped 8 basis points to 2.35%
• 30-year yield surged 26.5 basis points to 3.875%
• USD/JPY trading volatile around 157.65
• Fiscal target: $330 billion in AI investment

The Bond Vigilantes Awaken

The 10-yearJGB yield jumped 8 basis points to 2.35%, a level unseen since 1999, while the 30-year yield surged 26.5 basis points to 3.875%. The carnage was triggered by a lackluster 20-year auction which met weak demand, acting as the spark for a market already nervous about fiscal discipline.

Prime Minister Takaichi has explicitly signaled an end to “excessive austerity,” proposing tax cuts (including a two-year suspension of food consumption tax) and massive spending on AI and risk management. While aimed at stimulating growth, investors interpret this as a recipe for ballooning debt in a nation already shouldering the world's heaviest public debt burden.

Yen Volatility

The bond market rout caused a mixed reaction in the currency. While higher yields typically support the currency, the USD/JPY pair remains volatile around 157.65. The currency is caught in a tug-of-war: supported by the narrowing yield gap with the US, but weighed down by fears that Japan's fiscal health is deteriorating.

Adding to the complexity, Finance Minister Katayama stated at Davos that Japan is targeting $330 billion in AI and chip investment, attempting to assure investors that spending targets “growth sectors” rather than wasteful stimulus. However, the market's verdict—delivered via the bond rout—suggests deep skepticism remains.