Japan’s bond market is falling apart in real time after bond values crash

Japan’s bond market is falling apart in real time. On Tuesday, long-term government yields quietly hit levels not seen before. The 30-year Japanese bond yield jumped to 3.20%, a fresh record.

It didn’t come with alarms, but the fallout is loud. Since 2019, those same bonds have now lost 45% of their value. The financial damage is starting to spread, and confidence in the country’s ability to manage its debt is sinking, fast.

According to CNBC, this collapse has triggered a chain reaction. Over the past year, yields on the 30Y note climbed by 100 basis points, a surge that’s left institutional portfolios in tatters.

Japan’s four largest life insurers reported their unrealized losses on domestic bonds shot up from around $15 billion to $60 billion in Q1 2025. That’s not a small uptick—that’s four times bigger in just one year.

Bank of Japan absorbs the damage

The worst numbers are coming from the Bank of Japan. The central bank reported $198 billion in unrealized losses on government bonds for Fiscal Year 2024. One year earlier, that figure was around $66 billion. The losses have tripled, and nothing suggests they’re slowing down. In fact, the bleed is accelerating. It’s not just a bad year, it’s a system that’s starting to break.

That breakdown is now visible in Japan’s debt-to-GDP ratio, which has officially crossed 260%, the highest level in the country’s modern history. That ratio is now double that of the United States, even though the U.S. is also ramping up deficit spending under President Donald Trump. While America might be following behind, Japan is already deep in the hole.

There’s another problem: who holds all this collapsing debt? The Bank of Japan itself owns 52% of all domestic government bonds. Life insurers only hold 13.4%, banks hold 9.8%, and pension funds 8.9%. That means over half of the bonds crashing on fears of a default are held by the issuer. It’s the equivalent of lending money to yourself and then watching your own IOUs burn.

Global markets feel the pressure

Zooming out, this isn’t just about Japan. The U.S. 10-year yield has risen by nearly 500% since 2020, just behind the jump in Japan’s 30Y. That’s because Washington is flooding the market with bonds to finance Trump’s aggressive fiscal push. As supply rises, prices drop. The situation is dragging global bond markets into uncharted territory.

Inflation is making it worse. In May, Japan’s core CPI, excluding fresh food, rose 3.7% year-over-year, the fastest pace since January 2023. That’s the exact scenario U.S. Federal Reserve officials are trying to avoid, and it’s why they keep warning that interest rates may stay “higher for longer.”

And then there’s the weirdest part: Germany’s 30Y bond yields are almost identical to Japan’s, around 3.1%. But Germany has a Debt-to-GDP ratio of 62% and a policy rate of 2.25%, compared to Japan’s 0.50% and 260%+ debt ratio. The math doesn’t add up. It shows the global market is under pressure and nobody wants to be the first to cut spending.

Now, Japan’s mess is a warning to everyone else. A preview of what happens when governments rely too much on debt. Bond market liquidity is already worse than during the 2008 financial crisis. That’s not speculation, it’s a fact. And investors are reacting.

This is why Bitcoin and gold are both exploding to all-time highs. People are moving their money out of bonds and into hard assets. The market isn’t waiting around for politicians to fix it. It already knows what’s coming.