Analysts from TD Securities believe that worries about Japan’s fiscal situation are misplaced. They point out that while Japan’s Gross Debt to GDP ratio is around 250%, this is balanced by significant government assets. Unlike the UK during the 2022 Gilt crisis, Japan’s market does not involve leveraged LDIs.
The Bank of Japan may step in to the bond market if yields hit certain levels. This intervention might happen if 30-year yields quickly rise above 4%, especially in the 10-30 year range. Governor Ueda has stated that the bank is ready to help stabilize long-term yields.
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Fears about Japan’s fiscal outlook seem overstated. While the gross debt figure looks large, the government’s significant assets help balance these liabilities, making the situation appear more stable than many realize. As of January 2026, Japan’s net international investment position showed a surplus of over ¥470 trillion, highlighting this strength.
Opportunities in the Derivatives Market
We shouldn’t expect another UK gilt crisis like in 2022 because the market structure in Japan is very different. The Bank of Japan has indicated it is ready to intervene, providing strong support for the long-term bond market. Recently, the 30-year JGB yield hit 3.95%, nearing the crucial 4% level that could trigger intervention.
This situation presents us with a clear opportunity in the derivatives market over the coming weeks. We see value in strategies that counteract a sudden, uncontrolled rise in long-term yields. Selling out-of-the-money call options on 30-year JGB futures could allow us to benefit from this anticipated stability.
Historically, the Bank of Japan’s Yield Curve Control in the late 2010s and early 2020s shows a strong pattern of effective market management. Their past actions reinforce their commitment to preventing chaotic movements in the bond market, making their current statements much more credible.
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