The Japanese bond market is facing a deep crisis as long-term government bond yields reach record highs, leading to severe financial losses and a loss of confidence in the ability to manage national debt.
The value of long-term Japanese bonds has decreased by 45% since 2019, causing significant damage to financial institutions and the central bank. This situation not only affects the domestic market but also pushes the global bond market into a dangerous zone, causing investors to shift to safe assets like gold and Bitcoin.
MAIN CONTENT
Japan's 30-year government bond yield reached a record high of 3.20%, leading to severe financial asset losses.
The Bank of Japan reported unrealized losses of nearly 200 billion USD in the fiscal year 2024.
The impact of this crisis spreads to global markets, increasing U.S. bond yields and pushing investors to seek safe assets.
What caused the collapse of the Japanese bond market?
Leading financial experts point out that high public debt pressures and rising real interest rates have pushed long-term bond yields up sharply, reducing the value of bond assets in the market. Japan's public debt to GDP ratio has exceeded 260%, the highest in its modern history, double that of the United States, even as the U.S. increases fiscal spending.
This negatively affects the reputation and creditworthiness of the Japanese government in the global financial market, resulting in significant losses for both domestic and international investors.
The actual losses of major financial institutions in Japan
The Q1/2025 report indicates that four leading life insurance companies in Japan have seen unrealized losses on domestic bonds increase from 15 billion USD to 60 billion USD in just one year. The Bank of Japan also reported unrealized losses of up to 198 billion USD in the fiscal year 2024, three times higher than the previous year.
The current crisis is not just a single year of losses but a sign that Japan's bond system is beginning to break down severely.
Haruto Tanaka, Financial Strategy Director, XYZ Bank, 2025
How is the Bank of Japan affected?
As the owner of over 52% of domestic government bonds, the Bank of Japan is directly bearing most of the losses from the decline in bond values. The data for the fiscal year 2024 shows unrealized losses amounting to 198 billion USD, a threefold increase compared to 66 billion USD the previous year.
In its role of purchasing bonds to stabilize the market, the BoJ is under heavy pressure, raising concerns about the sustainability of current monetary policy.
The clear differences with other developed economies
While the 30-year bond yields of Germany and Japan are nearly equivalent, around 3.1% and 3.2%, respectively, Germany's public debt to GDP ratio is only 62%, significantly lower than Japan's. Germany also maintains a policy interest rate of 2.25%, while Japan's is only 0.50%. This shows that the global market is under significant pressure despite differing fiscal policies.
What is the global impact of the Japanese bond crisis?
The surge in bond yields in Japan has spread to international markets, contributing to a 500% increase in 10-year U.S. bond yields compared to 2020. This is a reaction to strong fiscal spending policies in the U.S. and the Fed's monetary policy adjustments to control inflation.
Global investors are flocking to safe assets like gold and Bitcoin, reflecting cautious sentiment amid unusual bond market volatility.
When governments rely too much on public debt, the risk of financial crisis is very high, and the market will not wait for politicians to act in a timely manner.
Janet Yellen, U.S. Secretary of the Treasury, 2025
How do inflation and monetary policy affect?
In Japan, the core CPI (excluding fresh food) in May 2025 increased by 3.7% compared to the same period last year, the highest growth rate since early 2023. This situation directly affects the interest rate policies of major central banks, especially the U.S. Fed, suggesting that interest rates may remain high for a long time to control inflation.
What is the current situation of bond holdings by domestic investor groups in Japan?
The central bank holds 52% of government bonds, insurance companies hold 13.4%, banks hold 9.8%, and pension funds hold 8.9%. This means that most of the debt risk is falling on the largest creditor – the issuer. This unique situation reflects the deep difficulties in Japan's current financial system.
A comparison of public debt and policy interest rates between Japan, the United States, and Germany
Country Public Debt/GDP Ratio 30-Year Bond Yield Policy Interest Rate Japan 260% 3.20% 0.50% United States 130% (estimate) 3.00% (10-year yield) 5.25% Germany 62% 3.10% 2.25%
Frequently Asked Questions
1. Why did Japanese bond yields spike?
Rising yields are due to high public debt pressures and the depreciation of bonds amid rising global interest rates, creating downward pressure on long-term bond prices.
2. How has the Bank of Japan reacted to the crisis?
The BoJ has become the largest creditor, holding over 52% of government bonds and experiencing unrealized losses of up to 198 billion USD in the fiscal year 2024.
3. What is the impact of this crisis on the international market?
The crisis increases global bond yields, prompting investors to switch to safe assets like gold and Bitcoin.
4. What is Japan's public debt/GDP ratio compared to developed countries?
Currently, Japan's public debt/GDP ratio is more than double that of the United States and nearly four times that of Germany, creating significant pressure on national finances.
5. How does inflation affect the Japanese bond market?
Rapid inflation forces central banks to raise interest rates, reducing the value of bonds and increasing long-term bond yields.
Source: https://tintucbitcoin.com/japan-saving-economy-crisis/
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