Overview

• Auctions of 20- and 40-year government bonds saw the weakest demand in a decade and a year respectively, pushing long-term yields above 3 percent for the first time in over 25 years.
• The Bank of Japan, which holds about 52 percent of government debt, is weighing reductions in ultra-long-dated issuance and a shift to more short-term notes to rebalance supply.
• U.S. tariffs on Japanese imports—including a 25 percent levy on automobiles and a 10 percent base rate—have intensified risks to Japan’s export-dependent economy and pressure on bond yields.
• Public debt topping 230 percent of GDP and a primary budget deficit exceeding 2 percent have led Prime Minister Shigeru Ishiba to warn that Japan’s finances are worse than Greece’s during its sovereign debt crisis.
• An inflation rate near 3.5 percent, constrained growth prospects under 1 percent due to an aging population, and the potential unwinding of the yen carry trade threaten both Japan’s fiscal outlook and global market stability.