TOKYO - Japan’s Ministry of Finance has taken the unusual step of cutting issuance of ultra-long-term government bonds after demand from major buyers weakened, highlighting concerns among investors about Japan’s fiscal outlook.
In June 2025, the ministry revised its issuance plan for the fiscal year, reducing the volume of bonds with maturities longer than 10 years. Officials described the measure as an exceptional response to declining demand. The decision came as yields on 20-year and 30-year bonds climbed to record highs in May, reflecting falling prices in the secondary market.
A key factor was a pullback by domestic life insurers, traditionally stable buyers of long-dated bonds. New regulations aimed at strengthening their financial soundness have prompted them to review their holdings, resulting in reduced purchases. Their retreat has opened the door to overseas hedge funds, which tend to trade bonds more aggressively and scrutinize fiscal risks more critically than domestic institutions.
The shift in demand dynamics has heightened foreign skepticism toward Japan’s fiscal stance. While many Japanese investors remain confident that the government will not default, international investors view fiscal sustainability less optimistically.
Market sentiment was also shaped by July’s House of Councillors election, during which both ruling and opposition parties floated costly measures such as cash handouts and consumption tax cuts to address inflation. These proposals fueled concern abroad that Japan’s fiscal discipline could weaken further, regardless of the election outcome.
Foreign investors recall Britain’s experience in 2022, when the Truss government’s unfunded tax cuts triggered a bond sell-off and sharp rise in yields. Analysts warn Japan could face similar scrutiny if it pursues aggressive fiscal measures without credible funding sources.
Source: Kyodo
