JPY: MUFG notes Japan’s ultra-long bond yields jump 27bps on fiscal worries

Global Bond Yields Surge Amid Japanese Market Turmoil

Yields on U.S. Treasury bonds have climbed, and similar increases are expected in the UK and Germany as trading begins, following a dramatic sell-off in Japan’s super-long government bonds. The yields on Japan’s 30-year and 40-year bonds soared by 27 basis points, signaling a severe loss of faith among investors. Remarks from Minoru Kiuchi, Japan’s Growth Strategy Minister, offered little reassurance—he downplayed the fiscal connection to bond movements, suggesting that yields are influenced by a variety of factors, and only mentioned that the government would consider fiscal responsibility when implementing a proposed sales tax reduction, according to MUFG FX analyst Derek Halpenny.

BoJ Faces Mounting Pressure as Yen Slides

Recent data from the JSDA reveals the dangers of relying heavily on foreign investors in Japan’s super-long bond sector. In 2025, overseas investors purchased a record JPY 13.4 trillion in Japanese government bonds with maturities over 10 years, far outpacing trust banks—often acting for pension funds—which bought JPY 4.7 trillion. Sharp intra-day market swings have forced many foreign investors to exit their positions, a trend that could have lasting negative effects on market sentiment. Should foreign participation continue to wane, similar episodes of volatility may become more frequent.

The catalyst for this market disruption was largely self-inflicted, triggered by Prime Minister Takaichi’s confirmation that the LDP would propose a two-year sales tax cut on food in its election platform. Investors are skeptical that the current budget can support this measure through existing revenues, leading to expectations of increased government bond issuance to cover the shortfall. This perception of government indifference to market stability is likely to fuel further selling pressure.

With these developments, the Bank of Japan (BoJ) is under growing pressure to act as the market’s backstop. Although the BoJ is gradually reducing its bond holdings—slowing the pace of purchases from JPY 400 billion to JPY 200 billion per month in April—further intervention may be necessary if volatility persists. The BoJ’s current approach, seen as lagging behind market developments, is contributing to downward pressure on bond prices and the yen, particularly against non-dollar currencies. Continued instability in the JGB market is likely to accelerate yen depreciation in the near term.