Tokyo, Jan 22, 2026, 00:42 JST
- Japan’s ultra-long bond selloff has driven borrowing costs to record highs, as political factors now dominate price movements.
- Trump’s push for Greenland and his tariff threats have reignited trade-war fears, rattling confidence in long-term government bonds.
- Investors are focused on Japan’s central bank and Europe’s next moves, searching for clues on whether the volatility will ease or deepen. 1
Japanese long-dated government bonds found some footing on Wednesday following a sharp selloff, though the 40-year yield hovered near 4.061% early in the session—still close to Tuesday’s record high of 4.22%. Traders also reacted to President Donald Trump’s comments in Europe, where he ruled out using force to acquire Greenland. 2
Japan’s sudden surge in yields is sending shockwaves through U.S. Treasuries and Europe’s long-term bonds, pushing borrowing costs higher in markets that had been surprisingly stable. Over just two days, Japan’s 10-year yield jumped nearly 19 basis points, while its 30-year yield recorded its largest daily gain since 2003. Germany and the UK also saw increases at the long end of the curve. “It pulls a lot of global bond markets into a difficult story about debt,” said Seema Shah, chief global strategist at Principal Asset Management. 3
In Tokyo, selling intensified after a weak turnout at a 20-year auction, traders noted, with few buyers stepping in and long-term yields hitting what they called “uncharted territory.” Charu Chanana, chief investment strategist at Saxo, described the soft demand as a market signal for a larger “fiscal premium” — the extra yield investors seek when concerns about government borrowing rise. 4
Prime Minister Sanae Takaichi is making tax cuts the focal point of the snap election scheduled for Feb. 8, leaving investors debating the impact on Japan’s debt, which tops 230% of GDP. Her plan to suspend the 8% food sales tax for two years would knock about 5 trillion yen off government revenue annually, with no clear plan for how to cover the shortfall. “It’s very hard to push the tax rate back up once you lower it,” said Takeshi Minami, chief economist at Norinchukin Research Institute. 5
Politics are clashing with geopolitics. On Tuesday, Trump declared there was “no going back” on his plan to control Greenland. He didn’t dismiss the option of taking the island by force, while also threatening tariffs and sharing AI images tied to the dispute. Danish Prime Minister Mette Frederiksen responded, saying Trump had “unfortunately not ruled out the use of military force,” and added, “And therefore the rest of us cannot rule it out either.” 6
Europe’s leaders are hinting they might hit back with trade measures, not just words. French President Emmanuel Macron declared that Europe won’t “passively accept the law of the strongest,” adding bluntly: “We do prefer respect to bullies.” The EU is gearing up for an emergency Greenland summit and considering reactivating tariffs on 93 billion euros worth of U.S. goods. They’re also looking at deploying their Anti-Coercion Instrument — a legal tool designed to fight economic pressure from abroad. 7
Washington is playing down worries over foreign unloading of U.S. debt. Treasury Secretary Scott Bessent dismissed fears of a Treasuries sell-off linked to tensions with Greenland, even taking a jab at Denmark’s market influence: “Denmark’s investment in the U.S. Treasury bonds, like Denmark itself, is irrelevant.” 8
Investors note the market feels different when stocks, the dollar, and Treasuries all falter simultaneously — the signature setup that sparks “Sell America” talk, a shorthand for pulling back from U.S. assets. “Global investors are taking these threats seriously,” said Jack Ablin, chief investment strategist at Cresset Capital, as Reuters highlighted rising volatility across asset classes. 9
At Davos, Britain’s finance minister Rachel Reeves pushed for a dial-down, stating she aimed “to de-escalate” and emphasizing that “the future of Greenland is for the people of Greenland.” She cautioned against letting heated rhetoric overshadow diplomacy, echoing Prime Minister Keir Starmer’s call for calm. 10
Export forecasts are highlighting some of the sharpest economic risks. Sweden’s Board of Trade warned that if Trump follows through on his tariff threats, Swedish exports to the U.S. could plunge by up to 28%. The duties would kick off at 10% on Feb. 1, then climb to 25% starting June 1. Electronics, iron, and steel are listed as the most vulnerable industries. 11
Markets have reacted predictably so far: stocks slipped while safe havens gained ground. London’s FTSE 100 logged its sharpest single-day drop in nearly two weeks on Tuesday. Gold surged past $4,700 an ounce as investors sought refuge. “Geopolitical tensions have dented sentiment and cooled early-year exuberance,” said Laura Cooper, senior macro strategist at Nuveen. 12
But the next move could hit quickly. Japan’s bond sell-off has sparked worries about a feedback loop in ultra-long debt—where forced selling meets thin liquidity—unless the Bank of Japan can reassure investors that the sell-off has run its course. Trump has proven he can pivot when markets push back. The catch? Neither Japan’s election campaign nor the Greenland standoff follow any tidy schedule, and that’s exactly what unsettles markets most.
