Japanese government bonds suddenly face a sell-off storm, with Japan and South Korea stock markets opening more than 1% lower

On January 21, the Japanese government bond market experienced a sudden sell-off storm, with 30-year and 40-year yields soaring over 25 basis points in a single day, described by traders as “the most chaotic trading day in recent years.” The market panic was triggered by Prime Minister Fumio Kishida’s announcement to “end fiscal tightening” and his proposal for tax cuts and increased spending, which investors viewed as Japan’s version of the “Truss moment.” Weak 20-year government bond auctions exacerbated the vicious cycle, forcing hedge funds to liquidate positions and insurance companies to face sudden pressure. The turmoil quickly spread globally, with US Treasury yields rising to multi-month highs. According to CEX market data, the Nikkei 225 index opened down 718.60 points, a decline of 1.36%, at 52,272.50 points. The KOSPI index in South Korea opened down 74.42 points, a decline of 1.52%, at 4,811.33 points. BlockBeats note: “‘Truss moment’ refers to the large-scale tax cuts and increased spending policies launched by former UK Prime Minister Liz Truss after taking office in 2022 without clear funding sources, which caused market panic, a sharp drop in the pound, soaring government bond yields, and the financial system teetering on collapse. Ultimately, she was forced to resign after only 49 days in office, becoming a symbol of ‘fiscal radicalism triggering market punishment and rapid leadership downfall.’”