PM Sanae Takaichi is attempting to calm markets after unveiling a $137bn stimulus plan that raised concerns about fiscal sustainability. Japan faces rising long-end bond yields, a weak yen, and doubts about who will absorb sharply increasing JGB supply.

I've summarised a long piece via Reuters. And also taken issue with a key conclusion (see below).

What Triggered Market Anxiety

  • In a Nov. 17 meeting, Finance Minister Katayama showed Takaichi a chart of aggressive selling in long-term JGBs.

  • The warning: rising yields threaten funding of her stimulus agenda and risk a “Truss shock”-style loss of confidence.

  • Japan’s debt burden is the highest in the developed world; BOJ and insurer demand for JGBs is waning.

How Takaichi is Responding

  • Softening tone on BOJ tightening; less resistance to rate hikes.

  • Promising to limit extra borrowing and reduce wasteful spending.

  • Publicly dismissing the possibility of a UK-style gilt meltdown.

  • Government stresses fiscal sustainability and market monitoring.

Market Reactions

  • 10-year JGB yields hit highest since 2007; up 25.5bp in four weeks, shaking global bond markets.

  • Some investors are shorting the yen and betting against long-dated JGBs amid fears of overstretched policy.

  • Yen has fallen ~5% since Takaichi took office.

Structural Challenges

  • Takaichi inherited Abenomics-style policy bias toward large stimulus.

  • Inflation near 3% and record debt levels contrast with her expansionary stance.

  • Net JGB supply expected to jump ¥11 trillion in 2026, raising the question: “Who will buy these bonds?”

  • Foreign demand is unreliable; domestic banks & insurers have reduced buying appetite.

Investor Views

  • Some see yen weakness as the “path of least resistance.”

  • Others argue stronger yen possible if the economy reflates.

  • JGB buying interest remains constrained until Tokyo provides clearer issuance guidance.

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I don't know about the “Who will buy these bonds?” worry. Yesterday's 30-yr JGB auction went off without a hitch, demand surged!

Source: Investing Live