Japan's financial markets have plunged into uncertainty as Prime Minister Sanae Takaichi's surprise call for an early general election triggers a historic sell-off. Long-term government bond yields recently surged to multi-decade highs, while the yen briefly approached 160 against the US dollar – levels last seen during major economic crises.
Analysts attribute the turbulence to mounting concerns over Japan's fiscal trajectory. The government's debt-to-GDP ratio, already exceeding 260%, faces new pressure from election-driven spending promises. Market watchers note this week's volatility reflects deeper anxieties about policy continuity and Japan's ability to balance economic reforms with geopolitical ambitions.
"This twin sell-off in bonds and currency isn't just about election jitters," said Yang Hangjun, professor at the University of International Business and Economics. "It exposes structural vulnerabilities – from aging demographics to energy dependency – that could undermine Japan's economic revival efforts."
With campaigning intensifying ahead of the 2026 vote, investors are scrutinizing party platforms for clues on monetary policy normalization and defense spending priorities. The Bank of Japan faces mounting challenges in managing yield curve control while stabilizing currency markets.
