#日本国债突现抛售风暴 Japan's Bond Market Out of Control: The Global Financial System Encounters “

Japan's long-term government bonds have played the role of a global liquidity stabilizer, but this most reliable liquidity support mechanism is disappearing. When Japanese government bond yields rise rapidly, it signifies two simultaneous developments: increased financing costs for arbitrage trades and a capital flight back to Japan. Japan holds a vast amount of overseas assets, totaling approximately 1,400 trillion yen (about $8.8 trillion), with securities assets accounting for around 1,000 trillion yen (about $6.3 trillion). If Japanese long-term bond yields continue to rise, it could trigger Japanese overseas investment institutions to sell high-liquidity assets such as US stocks and US bonds. This risk transmission has already become evident. Concurrent with the plunge in Japanese government bonds, the Japanese stock market fell about 2.5%, while US stock indices, US bonds, and the dollar index declined simultaneously, and gold broke through $4,700 per ounce. This is not just random fluctuation but a re-pricing of assets under a typical liquidity shock.

Comparison with Historical Crises
The current collapse of Japan's bond market reminds people of the “Truss Shock” in the UK. In 2022, UK Prime Minister Liz Truss announced a tax cut plan without funding support, triggering a spiral rise in UK gilt yields, which ultimately led to her government’s rapid collapse. Rinto Maruyama, a foreign exchange and interest rate strategist at SMBC Nikko Securities, pointed out: “Unlike the UK ‘Truss Shock’ period, the Japanese CDS has not risen significantly. Nor are highly leveraged participants forced to liquidate.” This suggests that Japan’s situation may be more complex but unlikely to repeat the rapid collapse seen during Truss’s tenure. This crisis also evokes memories of “Black Monday” in August 2024, when global stock, bond, and currency markets experienced a super crash. Wall Street veterans worry that the current Japanese bond sell-off wave could lead to a similar crisis.

Future Directions and Possible Solutions
Faced with the crisis, the Japanese government has limited options. In the short term, the Bank of Japan may temporarily increase bond purchases or restart yield curve control to ease volatility. However, a long-term exit from easing policies is difficult to reverse. High Minister Sanae Takaichi has expressed willingness to soothe the market, stating that bond issuance in this fiscal year will be lower than the previous year's 42.1 trillion yen. But more importantly, the government needs to propose a credible and robust economic growth narrative.
Principal Asset Management Asia Fixed Income Head Wen Haoyu pointed out: “Given that High Minister Sanae Takaichi has adopted a more proactive fiscal policy, she should be in a more advantageous position than her predecessors in solving this problem.”
In the medium to long term, Japan needs to confront complex issues such as debt restructuring, fiscal discipline rebuilding, and economic growth model transformation. This process will inevitably be painful but is a necessary path to restore fiscal sustainability.