Analysts from TD Securities argue that concerns over Japan’s fiscal position are unfounded. They note that the Gross Debt to GDP ratio of around 250% is offset by large government assets. Japan’s situation differs from the UK’s 2022 Gilt crisis, as Japan’s market does not involve leveraged LDIs.
The Bank of Japan may intervene in the bond market if yields reach certain levels. Intervention might occur if 30-year yields quickly surpass 4%, especially in the 10-30 year part of the curve. Governor Ueda previously mentioned readiness to stabilise long-end yields.
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Concerns about Japan’s fiscal outlook appear exaggerated, as the headline gross debt figure is not the whole story. We see the government’s significant assets offsetting these liabilities, making the situation more stable than many believe. As of January 2026, Japan’s net international investment position stood at a surplus of over ¥470 trillion, showcasing this underlying strength.
Opportunities in the Derivatives Market
We should not expect a repeat of the 2022 UK gilt crisis here, as the market structure is entirely different. The Bank of Japan has signaled its readiness to intervene, providing a clear backstop for the long end of the bond market. With the 30-year JGB yield touching 3.95% just last week, we are now approaching the key 4% level where intervention becomes highly likely.
This creates a clear opportunity for us in the derivatives market over the next few weeks. We see value in strategies that bet against a sharp, uncontrolled spike in long-term yields. Selling out-of-the-money call options on 30-year JGB futures could be a way to capitalize on this expected stability.
Looking back, the Bank of Japan’s history with Yield Curve Control throughout the late 2010s and early 2020s shows a strong precedent for this kind of market management. Their past actions demonstrate a commitment to preventing disorderly moves in the bond market. This history makes their current verbal commitments much more credible.
