Prime Minister Sanae Takaichi triggers bond market rout after pledging fiscal expansion and calling for snap election

Prime Minister sanae takaichi announced on Monday, January 20, 2026, a plan to call a snap general election for February 8 with a central pledge to suspend an 8 percent levy on food sales. This move by the leader of the Japanese government JP aims to reverse what she described as excessively tight fiscal policy. The announcement immediately triggered a severe selloff in the Japanese Government Bonds market, as investors expressed concern that increased debt issuance to fund these expansionary plans would worsen the nation's financial position.

The market reaction was particularly acute for the Japanese 10-Year Government Bond JGB10Y, with yields spiking 8.5 basis points over the course of two days. This movement represents the sharpest rise in the benchmark yield since the Bank of Japan loosened a cap on bond yields in 2022. Global financial markets felt the shockwaves of this volatility, which also influenced broader indices like the Nikkei 225 ^N225 and investment instruments such as the iShares MSCI Japan ETF EWJ.