The decline in Takaichi Sanae polls may trigger a “fiscal increase” and be wary of risks spilling over from the Japanese market to global equity bonds along the yield

The Zhitong Finance App learned that some senior financial market strategists said that the decline in Japanese Prime Minister Takaichi Sanae's approval rating may prompt the government to adopt a more relaxed and aggressive stance on fiscal spending and tax policies, thus further triggering investors' already serious concerns about the country's currency and bond market, and this concern may spill over to the global equity market, causing the stock and bond market to continue to be in sharp turmoil. Strategists generally worry that if the results of Japanese polls continue to deteriorate, the government may pay more attention to stimulus policies, which will be detrimental to bonds, yen, and even global equity market trends.

Although Sanae Takaichi's approval rating remains above 50%, recent public opinion polls conducted by local Japanese media show that the Japanese prime minister's approval rating has dropped to its lowest level since taking office. Takaichi Sanae said in the National Assembly on Monday that she has not yet analyzed the specific reason for the decline in approval ratings, but said she would “consider the poll results as a reflection of public opinion.”

Naka Matsuzawa, chief market strategist from Japanese financial giant Nomura Securities, said that if poll figures continue to deteriorate, the Japanese government led by Takaichi Sanae is likely to push the current stimulus policy tone more strongly, which will be detrimental to global bond assets and the yen exchange rate.

Takaichi Sanae has lagged far behind in fulfilling the food consumption tax reduction promises made during the election campaign. Some senior politicians criticized the policy as being fiscally unwise and suspected of catering to voters. Recently, a number of Japanese government officials said that the goal is to finalize this policy before the beginning of August.

“If the government starts strengthening its re-inflation policy, this will pose a major threat to the global bond market and the yen,” Matsuzawa said. He added that if treasury bond yields continue to rise, this will also be very bad for the Japanese stock market and the global stock market, as this may mean that the government's ability to implement policies is declining.

Rinto Maruyama, senior foreign exchange and interest rate strategist at Sumitomo Mitsui Nikko Securities, shared the same basic opinion. He said that public dissatisfaction with the Takaichi Sanae government is mainly due to its failure to contain rising prices, and this “will be a factor driving the Japanese government to further expand fiscal spending and strengthen related countermeasures.”

The fall in Takaichi Sanae's approval rating itself will not mechanically suppress the yen and Japanese debt; what really affects the market is the government's policy response function. Some July polls showed that its approval rating fell to 57% from 69% in June, and 71% of respondents were dissatisfied with the government's response to inflation; in this context, the government is more likely to repair public opinion by suspending 8% consumption tax on food and expanding subsidies and fiscal spending. If the tax cut lacks a clear source of permanent financing, the market will understand it as “hedging the cost of living crisis with fiscal expansion,” rather than supply-side reforms to increase productivity. This may simultaneously raise Japan's inflation expectations, pressure to issue treasury bonds, and risk premiums in the global bond market.

The pressure on the Japanese bond market is more direct, especially for long terms of 20 to 40 years. Food tax cuts and additional spending mean that the supply of treasury bonds may increase in the future, and the Bank of Japan is normalizing policies, and the market must absorb more long-term risks; the ratio of Japanese government debt to GDP is still far above 200%, so investors will demand a higher bond market maturity premium.

Since this year, the yield on long-term treasury bonds in developed markets around the world can be described as continuing to soar. Some of the world's largest central banks have issued new warnings about fiscal spending issues, continuing expansion of debt and interest, and demand for long-term treasury bonds. Therefore, under Takaichi Sanae's “Abenomics” policy tone and compounded by a “term premium,” the probability that 10-year and 30-year Japanese treasury bond yields will continue to rise to phased historical highs can be described as expanding more and more.

The so-called term premium refers to the amount of foreign bond yield compensation required by investors to hold the risk of long-term bonds. In the US bond market in particular, the “term premium” is most obvious — it has been hovering at a 10-year high since this year.

A typical treasury bond market transaction pattern is a steep bear market in the yield curve: the increase in ultra-long-term yields exceeds the short-term, reflecting fiscal risk rather than just the central bank's interest rate hike expectations. However, if there is a disorderly sell-off in the long run, the Bank of Japan may still stabilize the market through temporary debt purchases or adjustments to reduce the pace of debt purchases. This means that Japanese bonds will enter a highly volatile game of “fiscal expansion pushes up yields — central bank intervention limits the end” rather than a simple one-way bear market.

The transmission channel for the global market is that Japan is both a major creditor country and a long-term low-cost source of capital. Japan's net international investment position as of the end of 2025 was about 561.75 trillion yen; when yields on Japanese treasury bonds rise and returns on US and European bonds after exchange rate hedging decline, Japanese insurance companies, pensions, and banks may reduce overseas bond allocations or return funds to the mainland, thereby boosting long-term global yields such as US bonds and European bonds.

For the stock market that investors focus on, the weak yen is beneficial to Japanese exporters in the short term. The steep curve may improve bank spreads, but import inflation, high financing costs, and policy credit discounts will suppress domestic demand, real estate, and highly valued growth stocks; if the Bank of Japan is eventually forced to accelerate austerity and drive rapid appreciation of the yen, the global arbitrage positions of yen financing may be concentrated and liquidated, causing a second round of impact on high-beta assets such as technology stocks, crypto assets, and emerging markets. Therefore, the core investment implication of this round of Japanese prime minister polling risk events is not to immediately completely short Japanese assets, but rather to prevent a nonlinear risk that occurs at the same time as the long-term yield on Japanese bonds enters a new round of upward trajectory and a sudden reversal of the yen exchange rate.