Japan has lost its position as the "largest bond nation" in 34 years, with the Central Bank reducing the issuance of long-term bonds to rescue Japan's bond yield.

Global markets are closely watching the potential impact of soaring yields in Japan's bond market, losing its position as the largest bond nation in 34 years, and exposing deep structural problems. (Synopsis: Warren Buffett is also panicking? Berkshire Heatherweifa 90 billion yen bond "hit the smallest record in history", the Japanese stock index plunged 1,000 points) (Background added: rich dad warns "the end of the world is coming": no one buys US bond auctions, bitcoin will rush $1 million) Japan has long been known for its low yields and huge government bonds, but it is recently facing a bond market storm unprecedented in 34 years, which has caused Japan to lose its position as the largest bondholder since 1991. And all this has to do with the skyrocketing yield on long-term Japanese bonds, and the world is watching the BOJ's response and crisis management with bated breath as the Japanese Ministry of Finance makes a rare consultation with the market to stabilize the bond market. Japanese officials explore "reducing the issuance of long-term bonds" The Japanese bond market, especially long-term government bonds, has recently experienced sharp fluctuations, with the yield of 30-year Japanese government bonds once touching 3.2%, and the 40-year bond rising above 3.65%, causing market nervousness. In an effort to smooth volatility, Japan's Ministry of Finance recently conducted a rare questionnaire survey of major traders and market participants to ask them about their views on government bond issuance, which sparked speculation about a possible reduction in the supply of government bonds in Japan. According to Reuters, people familiar with the contents of the questionnaire pointed out that it may be that the Japanese authorities are preparing the market to gradually reduce the issuance of ultra-long-term government bonds, reflecting the tendency of Japanese officials to consolidate market consensus and deal with the reality of structurally weak demand for ultra-long-term government bonds. According to Reuters, Japan's finance ministry said on Tuesday that after 34 years, Japan's status as the world's largest creditor country was ceded by Germany. By the end of 2024, Germany's net external assets were 569.7 trillion yen, while China's was third with 516.3 trillion yen, and by 2024, Japan's net external assets will increase to a record 533.1 trillion yen (3.73 trillion US dollars), which is mainly due to the depreciation of the yen and the growth of the US dollar, as well as the decline in domestic bond purchases. In recent years, the Bank of Japan has gradually withdrawn its ultra-loose monetary policy (BoJ), including tapering bond purchases, considering interest rate hikes, and relaxing the (YCC) policy of yield curve control, which is the core driving force for raising yields. In addition, the demand of traditional buyers has weakened significantly, and there has even been a so-called "buyer strike". Traditional large investors such as life insurance companies, due to the prospect of rising interest rates and increased market uncertainty, have significantly reduced their purchases of long-term government bonds, or even turned to selling, for example, in April this year, the amount of life insurance companies purchased bonds fell by 95% year-on-year. Recent 20-year JGB auction results, both in terms of bid multiples and tail spreads, reflect persistently low market demand. The Bank of Japan's Dilemma In the face of this market turmoil, the Bank of Japan is caught in a difficult policy choice, and the central bank must find a delicate balance between maintaining stability in the bond market and continuing to normalize monetary policy. Excessive intervention in the market could undermine the credibility of its hard-established policy shift; However, if left unchecked, there may be a risk that the bond market will spiral out of control. Rising yields have put significant pressure on Japan's domestic finances, especially the increase in debt servicing costs. Although the Ministry of Finance is considering reducing the supply of ultra-long-term government bonds, market concerns about the demand outlook have not been completely dispelled. JPMorgan's senior economist told FT: "The market is relieved by the news that it may cut the supply of ultra-long-term government bonds, but the key remains on the demand side. Against the backdrop of continued inflation, tighter domestic liquidity and the Bank of Japan's commitment to normalization, Japanese yields will remain higher over the long term." Extended reading: Daily debt pulls alarm! Ten-year interest rates hit a 25-year high, life insurance giants lost 3.6 trillion yuan, and the script of the collapse of Silicon Valley banks reappeared Global Impact and Future Outlook The turmoil in the Japanese bond market is not an isolated event, the volatility of international finance should not be underestimated, Japan as one of the largest foreign holders of US Treasury bonds, the volatility of the Japanese bond market has a decisive impact on the global financial market, and Japanese financial institutions are forced to sell their holdings of US Treasury bonds in order to meet domestic liquidity needs or in response to changes in the yen exchange rate. Could further destabilize global bond markets. At the same time, it has been mentioned for a long time that the rise in Japanese yields may trigger a reversal of the large yen carry trade, and if a large amount of money flows back to Japan from overseas, it may trigger a global asset price correction. In this uncertain environment, some investors are turning to alternative assets such as Bitcoin to hedge against potential risks. While the Japanese government has taken initial steps to reassure markets, core supply-demand imbalances and the Bank of Japan's policy dilemma bode well for the storm to subside in the short term. This will not only severely test Japan's own fiscal health, but its spillover effects will continue to pose a challenge to global financial stability. Global investors and policymakers need to pay close attention to the next developments in the Japanese bond market and carefully assess and respond to the various risks that may arise. Read more: Japanese bonds crash? 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