The bond crisis as a global threat

GBP/JPY

Key zone: 211.00- 212.50

Buy: 213.00 (on a pullback after retesting the 212.00 level); target 214.50-215.50; StopLoss 212.30

Sell: 210.50 (on strong negative fundamentals) ; target 209.00-208.50; StopLoss 211.20

Ultra-long Japanese government bonds (JGBs) are once again turning into a global risk trigger. A sharp deterioration in the Japanese debt market could provoke sales of U.S. Treasuries totaling up to $130 billion.

Rising volatility in JGBs is already moving beyond the local market and beginning to transmit into U.S. Treasuries and other key debt segments.

Funds with comparable risk profiles that use balanced allocation strategies across equities, bonds, and commodities may, in the event of rising turbulence, be forced to liquidate up to 30% of their portfolios. This amplifies the domino effect.

The problem intensified last year amid fiscal risks, finally закрепив Japan’s status as a source of global volatility. The crisis is forming across several directions:

• the yield on 40-year JGBs exceeded 4% for the first time since their launch in 2007, reaching peaks around 4.2% — an extremely sharp move by domestic market standards;
• expectations of fiscal expansion have intensified ahead of the early elections on February 8, including statements by Prime Minister Sanae Takaichi about cutting taxes on food;
• chronically low liquidity in the JGB market means that under conditions of elevated risk, prices “collapse” even without significant actual selling volumes.

The liquidity index of Japanese government bonds has fallen to record lows, indicating a shortage of buyers.

Japan is ceasing to perform the role of a “safe haven,” directly disrupting established global risk assessment models.

Let us recall the key facts:

• Japan is the largest foreign holder of U.S. Treasuries, over $1,202.6 billion as of November 2025;
• synchronous portfolio revaluations involving JGBs transmit to global markets: every +10 bps in JGB yields may add +2–3 bps to the yields of USTs (U.S.), Bunds (Eurozone), and Gilts (UK);
• the South Korean bond market is also vulnerable: since early July 2024, foreign investors in KTBs have lost more than 10%, increasing the risk of cascading StopLoss sales.

The Bank of Japan has already raised its key rate to 0.75% — the highest level in decades — marking a psychological break with the era of “zero Japan.” The regulator is attempting to normalize policy while preventing an uncontrolled dysfunction of the JGB market.

At the same time, the BOJ has an official plan to reduce bond purchases:

• Q1 — reduction of approximately ¥400 bn (the usual pace),
• Q2 — reduction of approximately ¥200 bn.

A short-term price rebound followed statements by Finance Minister Satsuki Katayama calling for calm in the markets. Notably, U.S. Treasury Secretary Scott Bessent publicly linked the dynamics of U.S. Treasuries to the situation in JGBs — the market continues to perceive Japan as a threat to financial stability.

So what is the result?

The GBP/JPY pair is becoming more sensitive to Asian news than usual. This is a classic carry trade instrument, where sharp short-term moves against the main trend are possible — StopLoss should be set before entering a position.

The current regime remains conflicted:

• fiscal expectations and political signals pressure the yen (JPY may weaken);
• at the same time, rising yields and volatility can trigger risk-off and yen strengthening.

The UK factor in this pair remains secondary and has little influence on the dynamics.

So we act wisely and avoid unnecessary risks.

Profits to y’all!