Author: Max.S
Just 24 hours ago, Japanese financial history was rewritten. The Nikkei 225 index violently surged over 2,700 points, breaking through to a historic high of 57,000 points. This is not only a breakthrough in numbers, but also a direct pricing of the results of the shortest election period (16 days) since the end of World War II in the House of Representatives election — the ruling coalition of the Liberal Democratic Party and the Japan Innovation Party secured an absolute majority of two-thirds of the seats in the House of Representatives.
However, while stock traders were popping champagne, the bond trading floor was on high alert. Japanese government bonds (JGBs) faced a fierce selling wave, with the yield on 30-year bonds surging to 3.615%, a tsunami in a country long accustomed to low interest rates.
As a financial professional, we need to look beyond the surface of K-line charts and deconstruct the logic behind this "Song of Ice and Fire": global markets are trading a brand new "Japan narrative," and this narrative is intertwining with the rebound of U.S. tech stocks, gold's $5,000 threshold, and China's signals of selling U.S. Treasury bonds, forming a complex macro puzzle.
The surge on February 9 had only one core driving force: the expectation of fiscal expansion brought by political certainty.
According to the latest vote count, the Liberal Democratic Party (LDP) has secured 316 seats, and with the 36 seats from the New Komeito Party, the ruling coalition holds an absolute majority in the 465-seat legislature. This grants the government unprecedented legislative power, including on the controversial constitutional revision agenda, as well as more importantly — radical fiscal stimulus policies.
The logic chain of this transaction is very clear:
- Political endorsement: An absolute majority of seats means that the restraining power of the opposition parties (such as the Constitutional Democratic Party) has dropped to freezing point.
- Policy Expectations:"The temporary reduction of sales tax on food," explained by Finance Minister Kamo Kiyohara as "only for two years and not relying on debt issuance," the market is clearly pricing in a more prolonged fiscal easing.
- Industrial Policy: Defense and industry are at the core of the city's policies. This also explains why defense-related stocks such as Mitsubishi Heavy Industries led the gains, while SoftBank Group's surge of 8% was a direct response to the easing of liquidity and the improvement of the environment for technology investments.
For quantitative funds, yesterday's strategy was very simple:Go long Nikkei, short yen, short Japanese bonds. This is a typical "inflation reflation" trading model.
If the stock market is trading on "growth," then the bond market is trading on the prelude to "default risk"—or at least the deterioration of fiscal sustainability.
The selloff in the JGB (Japanese government bond) market was not sudden. As early as January, global macro funds including Schroders Plc and JPMorgan Asset Management had already started reducing their holdings of ultra-long-term Japanese government bonds. Yesterday, the 10-year yield rose 4.5 basis points to 2.28%, and the 30-year yield rose 6.5 basis points to 3.615%.
This sends a dangerous signal: the term premium is returning.
Investors are concerned that the tax cut policy, combined with the already heavy debt burden, will force the Japanese government to increase the issuance of government bonds. Although officials have tried to reassure the market, stating that the tax cut will not rely on deficit financing, any slight movement will be amplified in the liquidity-starved JGB market.
This also poses a huge dilemma for the Bank of Japan (BOJ). Overnight index swap (OIS) data shows that the market currently prices in a 75% probability of the BOJ raising interest rates by 25 basis points at its April meeting, and even some traders have started betting on a rate hike in March.
Why betting on a March rate hike? Because if the yen is depreciating disorderly due to deteriorating fiscal conditions (it once fell below 157.76 yesterday), the central bank must defend the exchange rate through a rate hike, even if this would exacerbate debt servicing costs. This is a classic "fiscal dominance" dilemma. Senior market economist Yusuke Matsuo from Mizuho Bank warned that we need to closely monitor hawkish remarks from BOJ board members, which could be verbal interventions to prevent the yen's collapse.
The Japanese market is not an isolated island. When we broaden our perspective to the global level, we find that the market movement on February 9th is part of a return in global risk appetite, but also accompanied by deeper structural cracks.
- Chinese market:This was the most thought-provoking macroeconomic news from yesterday: Chinese regulators advised financial institutions to control their holdings of U.S. Treasury bonds, citing "concentration risk and market volatility." Although the official wording was cautious, emphasizing that it does not involve geopolitical factors, in the context of tightening global liquidity, this move by the second-largest holder of U.S. Treasury bonds inevitably put upward pressure on U.S. Treasury yields (price decline). This is also one of the reasons why U.S. Treasury yields rose in tandem with Japanese government bond yields yesterday. This is essentially telling the market: the anchor of global sovereign credit is loosening.
- American market:The rebound on Friday was led by the semiconductor sector, with Nvidia, AMD, and Broadcom all rising more than 7%. This sentiment directly spread to Asia, where semiconductor equipment giants such as Tokyo Electron and Advantest became the main drivers for the Nikkei index to break through key levels. The story of capital expenditure (Capex) on AI infrastructure continues, and although Amazon's massive spending has raised concerns about profit margins, as long as demand for Nvidia's GPUs remains strong, the logic of the hardware cycle still holds.
- Precious Metals Market:After experiencing significant volatility, the price of gold has risen back above $5,000 per ounce. This is not a flight to safety, it is "credit hedging." When Japan is engaging in fiscal expansion, the U.S. debt ceiling issue persists, and China is diversifying its reserves, gold has become the only "supranational currency." U.S. Treasury Secretary Scott Bessent accused Chinese traders of influencing gold price fluctuations, which itself reveals the U.S. Treasury's anxiety over the dollar's pricing power.
How should investors respond to such a divided market — stock market euphoria vs. bond market crash?
- Equity Market:Long Volatility Although the Nikkei hit a new high, the decline in the VIX index may only be a calm before the storm. The U.S. labor market data on Wednesday this week and the inflation data (CPI) on Friday will be key variables. If U.S. inflation rebounds, combined with the Bank of Japan's hawkish shift, global liquidity will face a double tightening.
At this moment, it is prudent to hold core growth stocks (such as semiconductors, Japanese trading companies) while hedging with put options for protection. The current Skew data shows that put options remain expensive, indicating that institutions have not fully relaxed their vigilance.
- Foreign exchange market:Yen's Tactical Rebound The yen faces a very high intervention risk around the 157 level. Japanese Finance Minister Kagemasa Katayama clearly stated that he maintains close contact with the U.S. Treasury Secretary, which means the possibility of joint intervention cannot be ruled out. If the BOJ confirms a rate hike in March or April, the yen may experience a rapid short-covering rally. For carry trade participants, now is the time to gradually take profits.
- Alternative Assets:Follow "Hard Assets." In an era of shaken confidence in fiat currencies (whether fiscal concerns about the yen or debt concerns about the dollar), gold, silver, and certain cryptocurrencies that have stabilized in this market cycle (Bitcoin > $70k) hold long-term allocation value. Particularly silver, after experiencing a sharp 50% pullback, tight physical inventory may trigger a new short squeeze.
February 9, 2026, with the Nikkei at 57,000 points, is a milestone and a turning point. It marks Japan's complete departure from the deflationary era and the entry into a "new normal" characterized by high growth, high inflation, and high interest rate volatility. Sanae Takaichi's supermajority seats are a double-edged sword: they can drive up stock prices through radical policies, but they can also destroy bond market confidence through out-of-control fiscal deficits.
For financial professionals, the gentle era of "bull markets in both stocks and bonds" has ended. What we need to adapt to is an extreme scenario where the negative correlation between stocks and bonds breaks down, or even where both stocks and bonds suffer losses. In this new era, watching the central bank's balance sheet may be more important than watching corporate income statements.