2026-01-26 03:45:00
Last week’s move in long-dated Japanese bonds was a scary one.
30-year yields jumped more than 25 basis points in a day, a range that was one the hallmark of an entire year in Japanese bond markets. The move came after PM Takaichi called an election and immediately began talking about higher spending.
It’s a sign that these are different times in Japan and that the era of limitless lending to an aging, heavily-indebted country is over. It could also be a sign of genuine fears about inflation in Japan for the first time in decades.
As the chart shows, we’ve seen yields retreat from a high of 3.87% down to 3.61%, erasing the entire move from Jan 20, though not the one from the day before.
I don’t think we’ve seen the end of this story as we navigate towards the Feb 8 lower house election. The ruling LDP holds a lead in the polls but there was a slight dip on the weekend. They had her slipping around 4 points to 69% in the Yomiuri newspaper, though others have her as low as 57%. She remains personally popular and is campaigning on a temporary suspension in the food sales tax.
The nightmare scenario for her and for markets is that yields continue to rise and officials are forced to intervene in both the FX and bond market. That’s a losing strategy in a market as large as both and risks undermining global markets beyond Japan’s borders.
The turmoil in Japan is one of the reasons that gold today hit an all-time high of $5092, breaking $5000 for the first time and the surging further. Silver is also up an additional 5% today to $108.60/oz after breaking $100 for the first time on Friday.
