A data point that has been silent for nearly 20 years has recently broken records.

Japan's 40-year government bond yield has, for the first time since 2007, breached the 4% mark. People might think that 40 years is too far away and 4% is not that high. But you should know that Japan is the country with the highest debt pressure in the world, and this change in numbers is actually repricing the cost of funds globally. Why has the market started to collectively sell off Japanese government bonds at this point?

The most direct driving force behind this is the policy that Japan's new Prime Minister, Sanae Takaichi, is about to implement. She plans to send two signals before the elections in February:

First, to inject $135 billion for fiscal stimulus,

Second, to suspend the food consumption tax for two years.

From the government's perspective, this is an attempt to exchange money and tax cuts for economic growth, using growth to dilute debt. But in the eyes of investors, it looks like a large company with already high debt ratios is about to increase leverage for expansion. So, the question arises, why is the market no longer unconditionally supporting the Japanese government's borrowing like before?

Previously, there were buyers for Japanese bonds because the interest rates were low and expectations were stable. But now, Japan's debt has reached 250% of GDP, and the government is still seeking to expand spending. This has led to a problem: there are not enough long-term buyers left. Traditional buyers, like life insurance companies and pension funds, are now demanding higher 'premiums.' People are no longer willing to take on the risk of the next 40 years for a small amount of interest.

When the foundation of what was once the most stable government bonds begins to shake, will it affect the assets we hold?

In the next article, we will continue to discuss.