JGB Liquidity Flash Crash Rattles Markets Ahead of BoJ Decision

The Japanese Government Bond (JGB) market, valued at $7.2 trillion, faced a near-collapse in liquidity on Tuesday, sending yields soaring and triggering global financial tremors.

• A transaction volume of $280 million wiped out $41 billion in market value.
• Yields on 30-year and 40-year JGBs spiked by over 25 basis points.
• The USD/JPY pair is currently trading around 158.30.
• Foreign investors account for 65% of monthly spot trading, up from 12% in 2009.

The “Six Sigma” Event

US Treasury Secretary Scott Bessent characterized the volatility as a “six standard deviation” event. Market participants point to a severe lack of liquidity caused by years of Bank of Japan (BoJ) stimulus, which has crowded out private market makers. As the Greenback weakens broadly, currency markets remain volatile.

Structural Shifts and Foreign Flows

The crash exposes a structural shift in Japanese debt ownership. This “hot money” dominance (65% foreign) makes the market more susceptible to global sentiment shifts compared to the era when domestic life insurers stabilized prices.

All Eyes on the BoJ

The timing is critical as investors focus on Fridays BoJ policy meeting. Governor Kazuo Ueda faces intense pressure. Failure to reassure markets could trigger a fresh bout of volatility for the Yen and global sovereign bonds.