The Bank of Japan views bond market volatility as not requiring intervention, while bailing out the market might conflict with its interest rate hike strategy and risk triggering a sell-off in the yen.
On February 4, 2026, at 12:17 PM, Reuters reported that sources indicated that... Japanese Prime Minister Sanae Takaichi should not expect the Bank of Japan to intervene to curb the sharp rise in JGB yields, as the cost of intervention is too high. It also risks triggering an unwanted depreciation of the yen.
Last month, the Japanese bond market faced heavy selling pressure after Takaishi Yoshihide announced the dissolution of parliament and pledged to suspend food taxes for two years. This fueled concerns that expansionary fiscal policies would further increase the country's already high public debt, pushing yields on super-long JGBs to record highs—a situation investors compared to the 2022 "Truss Shock," which occurred after Liz Truss announced massive tax cuts without adequate funding.
Speculation that Takaishi's party might win a landslide victory in Sunday's election, giving the green light to proceed with fiscal stimulus policies, has bond investors remaining cautious about Japan's fiscal outlook. While volatility is causing concerns within the Bank of Japan (BOJ), three sources indicate that the risks of market intervention currently outweigh the benefits.
Japanese officials face a difficult choice: between controlling bond yields from soaring too high and attempting to prop up the yen through currency intervention. This further complicates the BOJ's position, as lowering long-term interest rates would contradict the central bank's gradual approach to raising rates.
At the January 22–23 meeting, some BOJ board members called for close monitoring of the steeply rising yield curve, while Bank of Japan Governor Kazuo Ueda stated that the pace of yield increases was relatively rapid and reiterated that the bank was prepared to act in exceptional circumstances.
However, sources indicate that the latest moves have not yet reached a level high enough for the BOJ to use as a reason for intervention. Available tools include off-plan emergency bond purchases or adjusting quarterly bond purchase ratios. The final measure would be to suspend or adjust the bond tapering program that has been in place since 2567.
Takahide Kiuchi, former BOJ board member. It was suggested that if the selling pressure stemmed from speculation, the BOJ might have room to intervene. However, this recent surge reflects concerns about the government's fiscal position, which is more of a responsibility for the government to manage than the central bank.
Analysts believe the Bank of Japan's hesitation reflects the high cost of intervention, as it would reverse efforts to reduce its balance sheet and could lead the market to perceive a return to monetary easing, risking a new round of yen selling.
Mari Iwashita, Interest Rate Strategist at Nomura Securities. They argued that attempting to push yields down would send a contradictory signal at a time when the BOJ is raising interest rates and could also risk damaging the central bank's credibility.
Some analysts believe the current situation may be just the calm before the storm, as investors are concerned about Japan's fiscal position and the JGB market could face a sudden sell-off again. Meanwhile, domestic life insurance companies, which were previously major buyers of very long-term bonds, are beginning to withdraw from the market.
Nobuyasu Atago, a former BOJ official, said that if the market plunges sharply, the BOJ will need to intervene. However, choosing the wrong timing could exacerbate panic, making this decision one of the most difficult challenges for Japanese policymakers at this time.
refer : reuters.com
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