PM Sanae Takaichi is attempting to calm markets after unveiling a $137bn stimulus plan that raised concerns about fiscal sustainability. Japan faces rising long-end bond yields, a weak yen, and doubts about who will absorb sharply increasing JGB supply.
I’ve summarised a long piece via Reuters. And also taken issue with a key conclusion (see below).
What Triggered Market Anxiety
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In a Nov. 17 meeting, Finance Minister Katayama showed Takaichi a chart of aggressive selling in long-term JGBs.
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The warning: rising yields threaten funding of her stimulus agenda and risk a “Truss shock”-style loss of confidence.
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Japan’s debt burden is the highest in the developed world; BOJ and insurer demand for JGBs is waning.
How Takaichi is Responding
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Softening tone on BOJ tightening; less resistance to rate hikes.
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Promising to limit extra borrowing and reduce wasteful spending.
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Publicly dismissing the possibility of a UK-style gilt meltdown.
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Government stresses fiscal sustainability and market monitoring.
Market Reactions
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10-year JGB yields hit highest since 2007; up 25.5bp in four weeks, shaking global bond markets.
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Some investors are shorting the yen and betting against long-dated JGBs amid fears of overstretched policy.
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Yen has fallen ~5% since Takaichi took office.
Structural Challenges
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Takaichi inherited Abenomics-style policy bias toward large stimulus.
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Inflation near 3% and record debt levels contrast with her expansionary stance.
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Net JGB supply expected to jump ¥11 trillion in 2026, raising the question:
“Who will buy these bonds?” -
Foreign demand is unreliable; domestic banks & insurers have reduced buying appetite.
Investor Views
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Some see yen weakness as the “path of least resistance.”
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Others argue stronger yen possible if the economy reflates.
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JGB buying interest remains constrained until Tokyo provides clearer issuance guidance.
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I don’t know about the “Who will buy these bonds?” worry
