Japanese Government 30-Year Yield Explodes after Threats of Increased Spending & Tax Cuts: Bond Vigilantes Rising from their Graves?
by Wolf Richter • Jan 20, 2026 • 30 Comments
One thing is clear: a bond market as strung out as Japan’s doesn’t want to hear about spending increases accompanied by tax cuts when inflation is already 3%.
By Wolf Richter for WOLF STREET.
The 30-year yield of Japanese Government Bonds (JGBs) exploded by 30 basis points today and by 42 basis points over the past two days, to 3.91%, the highest since the 30-year bond was introduced in 1999, after Prime Minister Sanae Takaichi called for increased government spending with simultaneous tax cuts by pausing the 8% consumption tax on food purchases. And she announced snap elections — three months after taking office — to get the public support her party needs to push those plans through parliament.
Inflation in Japan has been around 3%. Japan’s debt-to-GDP ratio is the worst in the world, at 256% at the end of the last fiscal year, more than double what it is in the US. Japan’s credit rating by Fitch (‘A’) is five notches below ‘AAA’ while S&P’s rating (‘A+’) and Moody’s rating (‘A1’) are four notches below ‘AAA’ (my cheat sheet of bond credit ratings by rating agency).
And the bond market – what’s left of it since the Bank of Japan still holds more than half of all JGBs outstanding though it is now shedding JGBs – is getting a wee bit nervous.
Maybe the dreaded “bond vigilantes” – big institutional investors that refuse to buy government bonds because risks are too high and yields too low – are rising from their graves? Nah?
But apparently, hedge funds got caught on the wrong foot and were turned into forced sellers, and it was a mess.
Another trigger today was the 20-year JGB auction, which was marred by weak demand, not surprisingly. And in the secondary market, the 20-year yield spiked by 22 basis points today, and by 32 basis points in two days, to 3.48%, the highest since 1996.
The crucial 10-year JGB yield rose by 7 basis points today and by 8 basis points on Monday, to 2.33%, the highest since 1999.
And yet, the 10-year JGB yield is still way below the rate of inflation (around 3.0%), when it should be significantly higher than the rate of inflation. So at those still too-low yields, those JGBs are still extremely unappetizing, and the fact that there are buyers at those yields at all is another sign that the bond vigilantes may still be dead.
Japanese government officials fanned out to calm down the markets, and even Bessent got in touch with Japan’s finance minister to discuss the situation, as Treasury yields in the US were also being roiled. So whatever.
But one thing is clear, a bond market as strung out as Japan’s doesn’t want to hear about spending increases accompanied by tax cuts when inflation is already at 3%. |
