Japan’s long-stable government bond market is bracing for turbulence as Sanae Takaichi prepares to become the country’s first female prime minister. Her expected confirmation on October 15 is prompting investors to reassess risks in a market long shielded by the Bank of Japan’s yield curve control and decades of deflation.
Takaichi, a hardline conservative who won the Liberal Democratic Party leadership race, is widely seen as a supporter of “Abenomics,” the late Shinzo Abe’s economic doctrine that favored aggressive fiscal spending and ultra-loose monetary policy. Markets now anticipate that her combination of pro-growth fiscal expansion and a cautious central bank could push long-term yields higher and steepen the Japanese government bond curve.
Rising Yields Signal Market Pressure
Following Takaichi’s victory, Japan’s 30-year government bond yield surged over 13 basis points to 3.291%, close to its all-time high. The 20-year yield climbed to 2.7%, the highest since 1999, reflecting growing investor unease over potential fiscal expansion. According to data from LSEG, long-term yields have already risen more than 100 basis points this year.
Goldman Sachs analysts said Takaichi’s win presents “upside risks” to long-end JGB yields, predicting a possible 10- to 15-basis-point increase in 30-year bonds as an initial reaction. They noted that Japanese long-term bonds have become “decoupled” from traditional anchors like inflation and growth, as markets price in looser fiscal discipline and a slower rate-hike cycle from the Bank of Japan.
Deutsche Bank also exited its long yen position, citing uncertainty around Takaichi’s policy priorities and the timing of the next central bank move. A BOJ rate hike expected by investors in October now appears less likely.
Economic Vision and Fiscal Strategy
Takaichi has signaled her intention to pursue a “high-pressure economy,” emphasizing public-private investment and large-scale fiscal support to break Japan’s persistent deflationary mindset. According to Crédit Agricole-CIB, the approach aims to encourage companies to shift from saving cash toward investing in growth, easing long-term deflationary forces and stimulating wage increases.
Despite inflation remaining above the BOJ’s 2% target for over three years, the government has yet to formally declare an end to deflation. Analysts say Takaichi’s strategy—if it involves tax cuts or handouts to secure political backing—could exacerbate inflationary pressures and test investor tolerance for higher debt issuance.
Global Implications and Market Reactions
Market analysts warn that if Japanese bond yields continue to climb toward 2% or 3%, the country could face a standoff between fiscal policymakers and “bond vigilantes,” investors who punish governments for excessive borrowing. “Any effort to open up the fiscal floodgates could unnerve the bond market,” said long-time Japan analyst William Pesek.
Goldman Sachs’ interest rate strategy team noted that volatility in Japan’s long-term bonds has made the country a “net exporter” of bearish shocks to global debt markets. Their estimates suggest that a 10-basis-point rise in Japanese bond yields typically translates into a 2-to-3-basis-point increase in U.S., German, and U.K. long-end yields, underscoring Japan’s growing influence on global borrowing costs.
As Takaichi prepares to take office, investors are watching closely to see whether her administration can balance fiscal ambition with financial discipline—or risk unsettling a market that has long been a cornerstone of global stability.