Japan's Record Bond Yields Put Yen Carry Trade Back in Focus: Could This Spark Fresh Trouble For US Markets?

Core Insights - Japan's 30-year treasury yields reached a record high of 3.52%, marking a 48-basis-point increase since November, raising concerns about potential impacts on U.S. and global markets [1] Group 1: Fiscal Conditions and Budget - Japan's government bond yields have surged significantly over the past year due to deteriorating fiscal conditions, with a record budget of ¥122.3 trillion ($785 billion) approved for the fiscal year starting April 2026, driven by increased social welfare and defense spending [2] - In addition to the budget, a ¥21.3 trillion ($140 billion) economic stimulus package was approved by the government [3] Group 2: Bond Yields and Currency Impact - Japan's 10-year government bond yield has risen to 2.12%, the highest since 1999, while the 30-year yield is at 3.46%, also a record high [3] - The Japanese Yen has depreciated over 34% against the U.S. Dollar in the past five years and 6.6% in the last six months, indicating a growing fiscal risk [5] Group 3: Market Dynamics - The rising bond yields are attributed to the Bank of Japan's continued purchasing of longer-term bonds, which caps yields and signals a rising risk of a debt crisis [4] - Japan's low-rate environment has supported significant carry trades, where investors borrow in yen to invest in higher-yielding assets abroad [6]