By: David Scutt, Market Analyst
Japan’s government bond market is repricing fiscal risk as political developments collide with questions over funding credibility. Since early October, the Japanese government bond curve has undergone a pronounced bear steepening, led by the ultra-long end where yields have surged to record levels. This adjustment reflects not short-term policy shifts but growing unease about how proposed tax cuts and spending plans will be financed. As of January 2026, markets are signalling that fiscal clarity has become a prerequisite for stability across Japan’s fixed income landscape.
David Scutt, FOREX.com APAC Market Analyst, has spent years analysing how macroeconomic policy decisions transmit through Asian bond and currency markets. His regional focus and experience tracking Japanese rates cycles position him to identify when market pricing reflects structural concern rather than temporary volatility.
Japan’s fiscal policy outlook is directly influencing the shape and pricing of the Japanese government bond curve. David Scutt notes that investors are focused on the implications of tax cuts and spending proposals, stating that “when the funding story is uncertain, term premia tends to rise”. This dynamic has pushed long-dated yields higher as markets price in greater compensation for holding debt amid fiscal ambiguity. Consequently, Japan’s bond market is acting as a constraint on policy ambition by embedding scepticism directly into yields.
The expansion in Japan’s term premium has been most pronounced at the ultra-long end of the Japanese government bond curve. Scutt highlights that the forty-year tenor has moved above 4%, observing that “moves have been greatest in the ultra-long end of the curve” as demand softens at auctions. This rise in long-term borrowing costs increases the risk that pressure migrates toward the belly of the curve, tightening financial conditions more broadly. If sustained, this shift could weigh on equities, credit markets, and household borrowing costs.
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--- Written by Frédéric Guétin, StoneX TV Producer
--- Expert: David Scutt, FOREX.com APAC Market Analyst
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