"Mini version of the Tlatelolco Moment" sweeps through Tokyo! Selling of Japanese bonds causes global turmoil, massive debt supply sounds alarm.

Chief economist Brian Coulton of Fitch Ratings said that the sell-off of Japanese bonds last week and the global volatility it triggered reflect market caution towards the massive government debt supply, with further concerns exacerbated by the Bank of Japan shrinking its balance sheet. Coulton emphasized in an interview in Frankfurt on Wednesday that the market is being forced to absorb both the Bank of Japan's quantitative tightening (QT) and the financing needs arising from the national budget deficit - it is not surprising if this makes investors in Japan and other regions uneasy. He said, "This may not necessarily be signaling that the market expects Japan to face a fiscal collapse, but it is sending a signal that the issue of government debt supply due to fiscal deficits, coupled with the central bank reintroducing bonds into the market, has become a problem affecting interest rates, and this is not only Japan's problem. The market is aware that governments are borrowing massive amounts of money, and although they expect the situation to improve, they are not completely certain." Ken Griffin, CEO of Citadel Investments, later commented that the chaos in the Japanese bond market due to concerns about the fiscal "splurge" leading up to the February 8 elections was akin to a "lite version of the Liz Truss moment" in 2022, when the former British Prime Minister caused market turmoil. The spillover effects of last week's events prompted US Treasury Secretary Bennett to have a conversation with Japanese Finance Minister Koizumi, who subsequently urged the market to remain calm. Coulton made it clear that his responsibilities at Fitch do not involve setting credit ratings. He pointed out that, when taking into account bond redemptions, the actual scale of quantitative tightening by the Bank of Japan amounts to about 6% to 7% of GDP annually. This proportion is significantly higher than that of the Federal Reserve or the Bank of England. Coulton said, "Suddenly, the market is asked to absorb all this supply. Perhaps not surprisingly, when you announce that the fiscal deficit may slightly increase - which means even more supply - the market reacts to this." In a broader context, the major government bond markets are currently more focused on fiscal issues than ever before. He said, "In developed countries, this was not the case before, when everyone only focused on the market's view of long-term policies, as well as long-term inflation. But I think, events in the past three, four, five years have shown that the market is not completely indifferent to this."