Global Bond Alert: Japan Faces 'Truss Moment' as JGB Yields Spike

The Japanese government bond (JGB) market faced historic turmoil on Tuesday, with long-term yields surging amid fears that proposed fiscal stimulus by Prime Minister Sanae Takaichi could trigger a sovereign debt crisis akin to the UK's 'Truss Moment'.

Market Dynamics & Fiscal Concerns

The serenity of the JGB market shattered, with traders describing the session as the most chaotic in recent years. Long-term yields surged, with 30-year and 40-year tenor yields jumping more than 25 basis points, marking the most significant volatility since the 'Trump Tariffs' shock in April 2025.

The catalyst is a growing crisis of confidence in Japan's fiscal discipline. Prime Minister Sanae Takaichi, eyeing a general election in February, has proposed aggressive stimulus measures. Participants fear these unfunded pledges—estimated to cost ¥5 trillion ($31.6 billion) annually—could trigger a scenario similar to the UK's 2022 'Liz Truss Moment.'

A Crisis of Confidence

The sell-off was exacerbated by a lackluster 20-year JGB auction which failed to attract demand. The rout spilled globally, pushing US 10-year Treasury yields up 7 basis points to 4.30%.

Policy Response & Forex Impact

With the 40-year JGB yield breaching the 4% barrier, speculation is mounting that the Bank of Japan (BOJ) may intervene via emergency bond-buying.

US Treasury Secretary Scott Bessent, speaking from Davos, suggested Japanese officials would make statements to calm the market, downplaying contagion risks.

For Forex traders, fiscal credibility concerns complicate JPY dynamics. The USD/JPY pair is in a volatile uptrend, testing the 157.89 level.

Technicals & Data Snapshot

• Resistance Level: USD/JPY testing 157.89
• Yield Spike: 30-year and 40-year JGB yields up > 25 bps
• Critical Threshold: 40-year JGB yield breached 4%
• Cost of Stimulus: Estimated at ¥5 trillion ($31.6 billion).
• Global Impact: US 10-year Treasury rose to 4.30%