Tokyo and London – International investors are cautiously returning to Japanese government bonds (JGBs), particularly those with longer maturities, following a period of volatility sparked by Prime Minister Sanae Takaichi’s snap election call and subsequent win. Net buying of JGBs with maturities exceeding 10 years reached its third-highest level since April 2004 in January, driven by rising yields, but concerns remain about the potential for looser fiscal policy under Takaichi’s leadership. This renewed interest in ultralong JGBs signals a complex interplay between market forces and political uncertainty in the world’s third-largest economy.
The surge in demand comes after a significant selloff in Japanese government bonds triggered by Takaichi’s election victory in October 2025. Goldman Sachs analysts predicted that Takaichi’s win presented “upside risks to long-end JGB yields,” anticipating a potential 10 to 15 basis point increase in 30-year yields as a first step. This initial reaction reflected market expectations that Takaichi, a proponent of “Abenomics,” would pursue a more fiscally active agenda.
Political Stability Calms Bond Market Nerves
However, the market has since stabilized somewhat, aided by a degree of political clarity following the confirmation of Takaichi as Prime Minister. The recent lower house election, even as prompting initial concerns, ultimately provided a level of stability that encouraged investor participation. Yields on Japanese government bonds have settled down since the election, creating an opportunity for investors to reassess their positions. The image accompanying this report shows the Shinjuku District of Tokyo, a visual representation of the economic landscape within which these market shifts are occurring.
Despite the calming effect, investors remain wary. The Bank of Japan’s (BOJ) yield curve control policy, designed to keep long-term interest rates low, has been a key factor in the JGB market for years. However, Takaichi’s commitment to a pro-growth, fiscally active agenda raises questions about the sustainability of this policy. Deutsche Bank, citing “too much uncertainty around Takaichi’s policy priorities and the timing of the BOJ hiking cycle,” exited its long-Japanese Yen trade following the Liberal Democratic Party election outcome. This move underscores the cautious sentiment prevailing among international investors.
Decoupling of Bonds from Economic Fundamentals
Adding to the complexity, long-term Japanese government bonds have become “decoupled from cyclical anchors” such as inflation or economic growth, according to Goldman Sachs analysts. This decoupling suggests that market movements are increasingly driven by factors beyond traditional economic indicators, making it more difficult to predict future trends. Investors are now pricing in the risk of looser fiscal policy and a potentially slower pace of interest rate hikes by the BOJ.
As of Monday, February 17, 2026, Japan’s 30-year bond yield jumped over 13 basis points to 3.291%, hovering near the all-time high reached last month, according to Business Insider. This increase reflects the market’s sensitivity to potential shifts in government policy and the ongoing debate about the future of monetary policy in Japan.
Implications for Global Markets
The situation in Japan’s bond market has broader implications for global financial markets. Japan is a major creditor nation and its bond yields influence investment flows worldwide. A significant increase in JGB yields could lead to higher borrowing costs globally and potentially impact other asset classes. The actions of the Bank of Japan and the fiscal policies of the Takaichi government will be closely watched by investors around the world.
The Ichigo Hotel Corporation, primarily investing in real estate as defined by Article 31, Paragraph 2 of The Hotel Business Law, Act No. 138, is one example of a company whose investment strategies could be affected by changes in JGB yields. Details regarding amendments to their articles of incorporation highlight the importance of monitoring market conditions for companies with significant real estate holdings.
Looking ahead, the key focus will be on Prime Minister Takaichi’s fiscal policy decisions and the Bank of Japan’s response. The next major checkpoint will be the release of the government’s budget plan in the coming weeks, which is expected to provide further clarity on the direction of fiscal policy. Investors will also be closely monitoring statements from the BOJ regarding its yield curve control policy and potential future interest rate adjustments.
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