Mia Glass and Momoka Yokoyama Wed, January 21, 2026 at 3:43 PM GMT+8 4 min read

In this article: JPY=X

JPYUSD=X

USD=X

(Bloomberg) -- Japan’s longer maturity bonds rebounded in a volatile market, with investors voicing concerns that the government and central bank may need to do more to calm the surge in yields.

The country will hold a snap election on Feb. 8, fueling worries there will be more wild swings ahead and keeping yields near historical highs. The yield on the 40-year tenor stayed above 4%, even after a drop of 17 basis points Wednesday. The slide in stocks deepened, and the yen - the worst performing G-10 currency so far this year - hovered around 158 against the dollar.

Most Read from Bloomberg

Seattle Is Building Light Rail Like It’s 1999

Chicago Splits 2026 Advance Pension Payment on Cash Crunch

NYC’s New Comptroller Sounds Alarm on Two-Year Deficit of $12.6 Billion

Tokyo Becoming Colony for the Rich, Pritzker Winner Warns

Summit $451 Million Deal for Bankrupt NYC Buildings Approved

The Bank of Japan went ahead with bond buying operations as planned on Wednesday, while Democratic Party for the People leader Yuichiro Tamaki said that the government and the central bank should take a firm response to the excessive moves. He suggested considering buying back government debt and reducing the issuance of 40-year bonds as possible further action.

“There is anticipation that the Ministry of Finance will either survey primary dealers or bring forward reductions in next fiscal year’s super-long bond issuance,” said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers Ltd. “Many market participants expect the BOJ to make extraordinary purchases of government bonds, but this will depend on whether the government tolerates the resulting yen depreciation.”

The bond slump was triggered by Prime Minister Sanae Takaichi’s election pitch to cut taxes, with 30- and 40-year yields both surging more than a quarter percentage point Tuesday.

The rout sent ripples across global markets, with US Treasury Secretary Scott Bessent saying he had spoken with his Japanese counterpart and that the moves had impacted Treasuries. Finance Minister Satsuki Katayama called for calm among market participants.

“Katayama’s comments will have some impact on the market, but these are not the type of moves that can be stopped with just verbal intervention,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management Co.

The yield on 30-year Japanese government debt fell 16.5 basis points to 3.71% on Wednesday. That on the 40-year bond was 4.04%, after rocketing Tuesday to as high as 4.215% for the first time ever.

“The bond market rebounded, but the move lacked strong momentum,” said Kazuya Fujiwara, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. “Unless uncertainty surrounding fiscal policy clearly improves, it will be difficult to find catalysts for buying.”

Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank, said that it plans to aggressively rebuild its local sovereign debt holdings once the surge in yields runs its course.

What Bloomberg strategists say:

Investor patience won’t last long unless there is swift official support from Japanese authorities to stabilize the JGB curve. Japanese Finance Minister Satsuki Katayama calling on market participants to calm down won’t carry much weight with traders when they can see benign neglect of the Japanese currency.

Especially as investors will have low expectations for this week’s Bank of Japan meeting as it falls ahead of elections in Japan and follows a rate hike in December.

— Mark Cranfield, Markets Live Strategist. Read more on MLIV.

Japanese stocks, which hit all-time highs last week after reports of the election, extended their declines on Wednesday as President Donald Trump’s latest push to take over Greenland and concerns over fiscal expansion in Japan dampened investor risk appetite.

After enjoying the strongest start to the year in decades, the optimistic view about Japanese equities is beginning to fade amid uncertainty over election results and rising yields that will weigh on the market.

“The rise in yields is due to caution about fiscal policy rather than economic strength as seen earlier, so the stock market is likely to view it negatively,” said Kazunori Tatebe, chief strategist at Daiwa Asset Management Co.

A decline in Japan’s Topix index Wednesday was led by banks and insurers. Mitsubishi UFJ Financial Group Inc dropped over 3% in its steepest decline since August.

Traders will be watching the BOJ’s policy decision on Friday to see whether Governor Kazuo Ueda says anything about in bond market moves. An auction of 40-year notes next week will also be a key test of appetite for super-long debt.

--With assistance from Anthony Stephens, Hidenori Yamanaka and Alice French.

Most Read from Bloomberg Businessweek

I’ve Studied How Democracies Fail. Here’s My Unified Theory of Trump

Janet Yellen Says Trump’s Moves Against Powell Are Backfiring

The Economic Toll of Trump’s Policies Will Soon Be Visible

Industry TV Recap: Failing Upward, Right to the Boardroom

A Global Explosion of Absurdly Spicy Foods

©2026 Bloomberg L.P.