Japan bond shock after LDP landslide raises global contagion risk
Feb 22nd 2026
Prime Minister Sanae Takaichis LDP won a two-thirds majority and plans debt-financed tax cuts, triggering sharp jumps in Japanese government bond yields and forcing Tokyo to seek pension fund support as the Bank of Japan hesitates to fully reflate markets.
- The LDP won 316 of 465 Diet seats and Takaichi proposes debt-financed measures including a VAT cut on food.
- Japans 40-year bond yield topped 4 percent in mid-January and the 30-year yield jumped 25 basis points in a single day.
- The Bank of Japans key rate is about 0.75 percent while inflation has remained above 2 percent for four years.
- The BoJ holds roughly half of outstanding Japanese government bonds and its balance sheet is only about 11 percent below the 2024 peak.
- Tokyo is asking the GPIF pension fund to buy more JGBs; GPIF holds about $1.8 trillion in assets while BoJ JGB holdings vastly exceed pension fund bond holdings.
- Japan now holds about $1.2 trillion in US Treasuries, surpassing China, so rising Japanese yields or reversed capital flows could transmit pressure to US and other core bond markets