 Japanese bond markets are flashing warning signs ahead of a politically uncertain weekend. The 10-year JGB yield surged to its highest level since March and is on the cusp of breaking 1.6% for the first time since 2007. Long-dated yields have moved even more aggressively: the 30-year hit a record 3.21%, while 20-year yields spiked to their highest since 1999. The sell-off reflects growing concern over Japan’s fiscal direction and political stability as the upper house election looms. Polls suggest Prime Minister Ishiba’s ruling coalition may fall short of even modest expectations. A new NHK survey shows the LDP at its weakest since returning to power more than a decade ago. Investors are worried that a weaker mandate or outright power shift could unleash a wave of populist fiscal proposals—chief among them, sweeping consumption tax cuts or even VAT elimination, as proposed by the right-wing Sanseito party. Fears of fiscal slippage are not new. In late May, similar concerns drove a steep sell-off in the super-long end, prompting the Ministry of Finance to announce cuts to bond issuance across the 20-, 30-, and 40-year tenors. But that intervention only provided temporary relief. With opposition parties openly campaigning on fiscal expansion, investors are once again questioning Japan’s ability to maintain fiscal discipline. Despite the surge in yields, Yen has failed to capitalize. The disconnect highlights how fiscal risk may be outweighing any potential monetary policy adjustments. There is some speculation that rising fiscal stimulus could push the BoJ to upgrade its inflation forecasts and consider hiking rates sooner. But for now, that view remains a secondary consideration to market worries about uncontrolled debt issuance...... | 
