Introduction
The rise in yields of long-term Japanese government bonds has garnered significant attention in recent months. Notably, foreign investors hold more than 50 percent of Japan’s long-term government bonds, making the country even more vulnerable to market fluctuations.
Background and Causes
High Debt
Japan is one of the most indebted industrialized nations, with a debt-to-GDP ratio exceeding 260%. This level of debt raises skepticism about the sustainability of public finances.
Increase in Yields
In recent months, yields on Japanese government bonds have risen significantly. Ten-year bonds had a yield of approximately 1.46% in May 2025, while the yield for thirty-year bonds nearly reached 2.90%. The rise in yields has been particularly striking for extremely long-term bonds.
Investor Confidence
The loss of investor confidence is underscored by weak demand at the recent auction of 20-year bonds.
Impacts on the Economy and Financial Markets
International Impacts
The rise in yields alarms international investors and could have significant consequences for global financial markets.
Bank of Japan (BOJ)
The rise in yields makes it more challenging for the BOJ to exit its long-standing economic stimulus program.
Dependence on Foreign Investors
With over 50% of the bonds held by foreign investors, Japan is particularly susceptible to changes in investor behavior.
Possible Reactions and Challenges
Fiscal Measures
The Japanese government could respond with fiscal measures to regain investor confidence.
Monetary Measures
The BOJ could adjust its monetary policy; however, this is challenging due to the extensive bond purchases made previously.
International Cooperation
International collaboration may be necessary to ensure market stability.