The turmoil in the Japanese bond market spreads globally, and the Finance Minister urgently calms market sentiment.

On Tuesday, amidst intense volatility in the Japanese government bond market, Japanese Finance Minister Kaori Hino stepped in to calm market sentiment. During her attendance at the World Economic Forum in Davos, Switzerland, she urged investors to "stay calm," emphasizing that Japan's current fiscal policy is "responsible and sustainable," not the expansionary policy that the market is worried about. Hino stated that Japan's fiscal position has remained cautious since last October, with relevant data clearly reflecting this. She pointed out that Japan's reliance on debt issuance is at its lowest level in 30 years, tax revenues continue to grow, and Japan has the smallest fiscal deficit among the Group of Seven (G7) countries, all of which confirm the soundness of the government's fiscal policy. Hino's statement comes as Japan's long-term government bonds faced a fierce sell-off. The yield on Japan's 40-year government bonds rose to a new high in decades, impacting other global markets. Market concerns mainly stem from Japanese Prime Minister Sanae Takaichi announcing last week that an early election will be held on February 8 to strengthen her ruling coalition's slim majority. Takaichi promised that if she wins a new mandate, she will suspend the sales tax on food and beverages for two years. According to estimates from the Japanese Ministry of Finance, this measure will result in an annual fiscal deficit of about 5 trillion yen (around $316 billion). Despite this scale being significantly smaller than the fiscal stimulus plan that led to the downfall of former UK Prime Minister Thatcher's government in 2022, the market still worries that Japan's massive debt burden may be further exacerbated. Until Takaichi clarifies how the shortfall will be covered without increasing deficit financing through government bonds, investor sentiment is expected to remain under pressure. To further stabilize market expectations, Hino revealed that during her meeting with the Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva in Washington last week, the IMF gave positive feedback on Japan's fiscal position. She relayed that the IMF believes the Japanese government places high importance on fiscal sustainability when implementing any policy action. When asked whether Japan's central bank would be asked to increase its government bond purchases in its routine operations on Wednesday, Hino responded that if the government needs to formulate a response plan to recent market fluctuations, she would not be at Davos personally, hinting that the government is still evaluating appropriate policy options. Hino also stated that the government will explore various ways to raise funds for tax-cut policies, including cutting redundant expenses and re-examining tax relief arrangements, reaffirming that this measure does not require additional issuance of government bonds, consistent with Takaichi's previous statements. In response to concerns about weakening demand for Japanese government bonds in the market, she also countered by stating that recent government bond auctions have been proceeding smoothly, and the government is confident in completing the planned subsequent issuance of government bonds. She said, "We have taken measures to stabilize the market and can assure everyone that we will continue to do so in the future."