Japan Faces Mounting Financial Stress as Bond Market Cracks

A wave of economic red flags is shaking confidence in Japan’s fiscal health.

With its long-term bond yields hitting two-decade highs and GDP contracting for the first time in a year, investors are growing wary of the country’s financial trajectory.

The spike in 40-year bond yields signals rising skepticism about the government’s ability to manage debt over the long haul. Once viewed as a bastion of stability, Japan’s bond market is now flashing warning signs reminiscent of past debt crises abroad.

Prime Minister Shigeru Ishiba has called the situation more severe than Greece’s financial collapse — a stark assessment reflecting both domestic and international unease.

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His comments come as Moody’s downgrade of U.S. credit adds further stress to global markets, intensifying capital outflows and triggering a sharp 3.2% drop in the Nikkei 225.

Analysts point to structural weaknesses — an aging population, sluggish growth, and an overreliance on ultra-low interest rates — as reasons why Japan’s economy may struggle to regain footing. And with bond yields rising, the cost of servicing that debt is beginning to bite.

In a global economy increasingly sensitive to debt sustainability, Japan’s troubles serve as a stark reminder: even developed markets aren’t immune to fiscal reckoning.

Alexander Stefanov