TOKYO, February 9, 2026, 20:07 JST
- The dollar pulled back, Treasuries softened, following reports that Chinese regulators told banks to scale back their holdings of U.S. government debt.
- Japan’s Nikkei finished at an all-time high as Prime Minister Sanae Takaichi’s sweeping victory paved the way for both tax reductions and new spending measures.
- The yen clawed back from earlier declines, with Tokyo still signaling possible intervention.
Treasuries lost ground and the dollar weakened Monday, after sources said Chinese regulators had cautioned banks on the dangers tied to large holdings of U.S. government bonds. The U.S. 10-year yield ticked up three basis points to 4.23%. In Japan, stocks and bond yields climbed as Prime Minister Sanae Takaichi secured an election victory.
After a wild week that saw global stocks whip around, battered U.S. chip names and other momentum plays managed a jump, pulling equities higher. Now, with a packed slate of U.S. data on deck, traders face a fresh test: just how aggressively can they keep pricing in June rate cuts?
The Japanese election has delivered a jolt. Takaichi heads into office with a strong mandate, investors note, but she’s immediately up against the reality of Japan’s towering debt—the highest among developed nations. Bond and FX traders can react swiftly. “The markets will set an important constraint here,” said Fred Neumann at HSBC. Reuters
China’s latest guidance on U.S. Treasuries landed as a call for risk management, not a political shot. Regulators told banks and other financial institutions to trim their exposure to U.S. government bonds, according to Bloomberg News, flagging both concentration risk and market swings. The advisory, Bloomberg noted, specifically steers clear of state-held positions but puts private institutions on notice if they’re heavily loaded up. Requests for comment sent to the PBOC and the National Financial Regulatory Administration by Reuters weren’t answered right away.
The renminbi climbed to new highs after the report, the onshore yuan reaching 6.9284 per dollar. China’s central bank fixed the daily midpoint at 6.9523, its firmest level since mid-May 2023, according to the Business Times.
Relief swept through Tokyo. The Nikkei finished up 3.9% at a record 56,363.94, and the Topix added 2.3% to also notch a new high at 3,783.57. As for “super-long” Japanese government bonds—30-year paper—those stabilized following a short-lived dip. “It’s not just a stable administration,” said Shingo Ide at NLI Research Institute. He pointed to “the prospect of a long-term administration.” Reuters
Takaichi’s Liberal Democratic Party grabbed 316 out of 465 seats in the lower house, and she’s sticking to her promise: suspend the 8% sales tax on food for two years, with no new debt to cover the gap. That proposal’s price tag? Around 5 trillion yen ($32 billion) annually. Now, the focus turns to her strategy for closing that fiscal gap. “The election outcome has heightened the chance of a consumption tax cut,” said BNP Paribas economist Ryutaro Kono. Reuters
The yen broke from its recent slump, flipping higher after a weak start and putting an end to its six-day slide. The dollar slipped about 0.4% against the yen, last quoted at 156.56—this after the yen had earlier hit fresh lows against the Swiss franc. Japan’s chief currency official, Atsushi Mimura, described the government’s watch over forex swings as carried out “with a high sense of urgency.” OCBC’s Sim Moh Siong pointed out that “intervention risk” could keep a lid on dollar-yen upside. Reuters
Japan’s funding decisions are facing a sharper spotlight. Reuters flagged fresh concerns around the nation’s vast $1.4 trillion stash of foreign exchange reserves—mostly parked in U.S. Treasuries and typically tapped for yen intervention—as Takaichi seeks cash for the tax cut, steering clear of fresh debt. “Income generated from the reserves is certainly important, but it should not be relied on excessively as a permanent funding source,” said Saisuke Sakai, economist at Mizuho Research & Technologies. Reuters
But some analysts flagged the risk that early optimism might evaporate if bonds sell off or the yen takes another hit. “Overall, short-term risks appear to be tilted somewhat toward yen weakness,” said Junya Tanase at JPMorgan. Other market watchers pointed out that investors are likely to keep probing just how much “responsible” stimulus the new government can deliver before JGB buyers start to worry. Reuters
Washington could be the next shock. As Reuters’ Morning Bid column pointed out, an unusual cluster of reports is due this week: U.S. payrolls, retail sales, and consumer prices are all on deck. Jobs are expected to climb roughly 70,000, but estimates are all over the map. Markets have a June cut almost fully priced in—so if the data tops forecasts, watch for yields and the dollar to shift quickly.
