Japan’s Bond Shock Marks the End of Financial Exceptionalism

Political timing and fiscal rhetoric collided with market structure in early February, prompting DWS’s CIO team to assess whether Japan has entered a new and less predictable financial phase.

• Expansionary fiscal signals ahead of the snap election drove record spikes in ultra-long JGB yields, exposing a structural demand gap rather than a liquidity crisis.

• Market stability is supported by domestic ownership and the Bank of Japan’s balance sheet, but volatility in bonds and the yen is likely to persist.

• Japan’s debt remains sustainable for now, yet increasingly dependent on inflation staying near target and funding costs staying low.

Is Japan normalising—or losing its role as a global anchor? The full report explores the implications for rates, currency, and global spillovers.