Stability has returned to the Japanese bond market after a week of intense volatility. The 40-year Japanese government bond (JGB) yield, which recently surged past 4% on fears of Prime Minister Sanae Takaichi’s spending plans, has dropped back to 3.0955%. This retreat has been instrumental in calming global markets.
The spike was triggered by concerns that the new administration might significantly increase Japan’s sovereign debt. However, the Bank of Japan’s recent policy meeting helped anchor expectations. By keeping the policy rate at 0.75% while upgrading economic outlooks, the BoJ provided a sense of continuity and professional oversight.
In the U.S., Treasury yields have remained relatively flat. This suggests that despite the political theater in Washington regarding Greenland and European tariffs, foreign investors still view U.S. debt as a safe haven. The lack of a “rush to the exits” in the bond market has allowed stocks to recover more easily.
The relationship between yields and the “TACO” effect is also noteworthy. When President Trump reverses course on tariffs to save a dipping market, it prevents the kind of economic shock that would usually send yields plummeting. This creates a feedback loop that keeps both bonds and stocks within a predictable range.
For the average investor, the message is clear: the debt crisis in Japan has been averted for now, and U.S. yields are holding steady. This “calm after the storm” is allowing for the modest gains we are seeing in Asian and U.S. futures this Friday morning.