Rising Yields, Soaring Yen: Why Japan's Fiscal Crisis Isn't Sinking Its Currency

(MENAFN- Mid-East Info) By Daniela Sabin Hathorn, senior market analyst at Capital

Japan is currently grappling with significant fiscal challenges, highlighted by Prime Minister Shigeru Ishiba's recent statement to parliament that the country's fiscal situation is worse than Greece's during its 2010 crisis. This alarming comparison has intensified scrutiny of Japan's debt structure; however, the yen has been rising.

Japan's debt crisis: A growing concern:

Japan's public debt is among the highest globally, with a debt-to-GDP ratio exceeding 260%. As of December 2024, the central government's long-term debt stood at approximately ¥1,136 trillion, with local governments adding another ¥179 trillion, bringing the total to around ¥1,315 trillion.

Historically, Japan has managed this massive debt burden through ultra-low interest rates and the Bank of Japan's (BoJ) yield curve control (YCC) policy. However, recent monetary policy shifts have driven yields higher, escalating the cost of debt servicing.

Adding more fuel to the fire, on Tuesday Japan's 20-year government bond auction experienced its weakest demand since 2012. This reflects investor concerns over Japan's fiscal health and the BOJ's tapering of bond purchases. Longer-term bonds have also been affected. The 30-year yield has risen to 3.19%, and the 40-year yield reached a record high of 3.61%. These increases indicate a significant shift in investor sentiment and a re-evaluation of the risks associated with Japanese government bonds. -p decoding="async" class="CToWUd" title="A graph of stock marketAI-generated content may be incorrect." src="#" alt="A graph of stock marketAI-generated content may be incorrect." width="624" data-bit="iit" />

Past performance is not a reliable indicator of future results.

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