Japan Bond Market Stress Test – Yields at Multi-Decade Highs

Japan's bond sell-off intensifies with 10yr yield at 2.87% (highest since 1996) and 30yr above 4%, driven by PM Takaichi's $2.3T spending plan. The breakdown of the yen-JGB inverse relationship is a key signal. Government betting on growth to reduce debt ratio. This development affects global rates and carry trades, with yen at 52-week low and VIX collapsed. Japan asset managers pursuing global mandates as yen bond demand grows. Latest JGB auction showed weakening demand: bid-to-cover 2.56 (lowest since May 2025), tail widened to 0.46 (highest in two years). Coordinated yen intervention confirmed by US Treasury Secretary Bessent, adding to policy uncertainty. Perfect storm of yen weakness, JGB volatility, and Fed/BOJ credibility issues raises spillover risk to US Treasuries given Japan's $1.14T holdings. A critical development for global bond markets.