The Japanese financial market experienced a double whammy with declines in both bonds and the yen on Tuesday, showing rising market concerns about Japan's deteriorating fiscal situation.
According to Japanese media, this was triggered by Prime Minister Sanae Takaichi's decision to dissolve the House of Representatives and call a snap election on Jan. 23, the Diet's opening day.
On Tuesday, the Tokyo bond market saw a sharp rise in yields on long-term Japanese government bonds as investors dumped them, with Japan's benchmark 10-year government bond yield surging to 2.16 percent, its highest level since February 1999.
Since Takaichi took office in October 2025, the Japanese government's aggressive expansionary fiscal policies have fueled fears of an accelerating deterioration in public finances, leading to a sell-off of long-term government bonds.
This has triggered lower long-term bond prices and rising yields, even breaking historical highs. In the foreign exchange market, Japanese yen's exchange rate against the U.S. dollars once fell to 158.97 yen to one U.S. dollar.
In early October 2025, Japanese yen's exchange rate was hovering around 147 yen to one U.S. dollar. With Takashi's election as prime minister of Japan, the yen's exchange rate has returned to a downward trend.
Analysts believe that as the Liberal Democratic Party (LDP) does not currently hold a majority of seats in the House of Representatives, investors are concerned that if the LDP wins a re-election, it will further promote Takashi's expansionary fiscal policies, exacerbating the fiscal risks. Therefore, the market remains highly vigilant about the dissolution of the House of Representatives.
Japan hit by double whammy with declines in bonds, yen
