JPY weakens as JGBs tumble on fiscal concerns – BBH

FXStreetJan 20, 2026 11:27 AM

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The Japanese Yen (JPY) underperformed while government bonds plunged following Prime Minister Takaichi’s announcement of a snap election and a pro-stimulus agenda including a two-year food tax break, BBH FX analysts report.

Japan election sparks market worries over stimulus

"JPY is underperforming and JGBs plunged on concerns over a further loosening of Japan’s fiscal discipline. Yesterday, Japanese Prime Minister Sanae Takaichi confirmed plans to dissolve the lower house of parliament on January 23, with official campaigning to start on January 27 and voting on February 8. In parallel, Takaichi reinforced her already pro-stimulus agenda by pledging a two-year break on Japan’s 8% sales tax rate for food if she wins."

"In our view, worries over Japan fiscal profligacy are overdone. Japan nominal GDP growth is running at around 4% and leading indicators point to an encouraging growth outlook, while 10-year government bond yields are closer to 2.3%. With growth comfortably exceeding borrowing costs, Japan can sustain primary budget deficits without putting its debt ratio on an upward trajectory. In this environment, fiscal sustainability is far less fragile than markets currently imply."

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