Bird’s-eye view of central Tokyo including Tokyo Tower at sunrise hours.
Vladimir Zakharov | Moment | Getty Images
Japan’s 40-year government bond yield hit a record high on Tuesday amid a broad selloff in government debt, as investors worried that proposed cuts to the food sales tax could worsen the country’s fiscal position.
The long-dated yield rose nearly 3 basis points to 4.213%, the highest level since the 40-year maturity was introduced.
Yields on shorter maturities climbed sharply as well. The 10-year Japan government bond yield rose by over 10 basis points to 2.38%, the highest level since 1999, while yields on the 20-year tenor jumped by around 22 basis points to 3.47%.
The selloff came a day after Prime Minister Sanae Takaichi said she plans to dissolve parliament on Friday and call a snap election on Feb. 8, setting the stage for a campaign that is expected to focus heavily on economic policy.
“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.
That repricing has revived a familiar market pattern, he added. “This has revived the classic ‘Takaichi trade‘ dynamic of stronger Nikkei, weaker JGBs and yen,” Loo told CNBC.
It was a repeat of the volatility seen in October last year, when Japanese markets reacted to comments and policy signals from Takaichi that pointed toward looser fiscal policy, which later stabilized, he added.
The current repricing has strong technical and sentiment echoes, Loo said, rather than signaling structural distress.
Loo added that the yield curve is likely to remain steep through the first half of this year before stabilizing as bond issuance patterns adjust and domestic banks return as buyers.
Japan’s bond selloff matters far beyond its borders because of the country’s outsized role in global capital flows.
Japanese investors have been among the most aggressive buyers of overseas debt, particularly U.S. Treasurys. The East Asian nation is the largest foreign holder of U.S. government debt, according to the U.S. Treasury Department’s Treasury International Capital.
As of November 2025, Japanese entities held about $1.2 trillion in U.S. Treasury securities. The United Kingdom ranked second, with about $888 billion.
“Japanese investors in the past have been particularly aggressive in buying debt in other markets, in particular the U.S., where interest rates have been higher than in Japan,” said Ed Yardeni, president of Yardeni Research.
The basic problem in the global bond market is this: major governments of the major economies are living deficits.
Ed Yardeni
Yardeni Research
“Now that their yields are going up, you’re likely to see that Japanese bond investors may be more likely to stay home and invest in their own bonds rather than in the U.S., so that could put some upward pressure on U.S. bond yields,” he added.
Treasury yields have already been rising alongside Japanese bonds, with the long end of the U.S. curve under pressure as investors digest the implications of looser fiscal policy and rising issuance. Yardeni said the core issue extends well beyond any single country.
Yields on the 10-year U.S. Treasury rose over 5 basis points to 4.283%, the highest since last October, while the 20-year yield jumped 9 basis points higher to 4.882%.
In Europe, yields also edged higher. The 10-year German Bund rose nearly 4 basis points to 2.876% while the 20-year Bund increased to 3.416%. Yields on the 30-year German Bund advanced more than 6 basis points to 3.52%.
“The basic problem in the global bond market is this: major governments of the major economies are living deficits. They’ve accumulated a great deal of debt, and investors are starting to demonstrate that they’re not happy about that,” he said.
Global debt remains elevated after years of pandemic and stimulus-era borrowing, staying above 235% of world GDP even as private debt has eased slightly, while government obligations continue to swell and outpace economic growth.
Geopolitical risks have also become an increasingly important driver of bond markets, some analysts said, as concerns grow that governments will respond to instability with higher defense spending.
“I think recent geopolitical developments are disturbing the bond market because it’s clear that if the geopolitical situation continues to become more and more unstable, that will need more and more defense spending,” Yardeni said.
Some strategists have also warned that Europe’s large holdings of U.S. assets could complicate global capital flows. Analysts at Deutsche Bank have said that renewed trade tensions linked to Greenland risk unsettling long-standing capital flows, noting that Europe is America’s largest external lender.
“The U.S. has one key weakness: it relies on others to pay its bills via large external deficits. Europe, on the other hand, is America’s largest lender,” said George Saravelos, global head of FX research at Deutsche Bank.
European countries hold $8 trillion in U.S. bonds and equities, about twice as much as the rest of the world combined, according to Deutsche Bank data.
