Japan's government bond market liquidity deteriorated to a record low in early January 2026, with bid-ask spreads widening to 4.8 basis points—the highest since data tracking began. The crisis stems from sustained investor reluctance to purchase new issuance, reflecting deepening concerns over yield volatility and monetary policy uncertainty.
- Bid-ask spread on JGBs reached 4.8 basis points in early January 2026—record high.
- Primary dealer participation in JGB auctions down 30% since Q3 2025.
- Secondary trading volume declined 27% year-on-year through January 2026.
- Active market makers in JGBs dropped below 60, down from 92 in early 2024.
- Foreign investors increasingly reallocating from Japanese bonds to U.S. and German debt.
- Yield curve control policy failing to restore confidence in long-dated paper.
The Japanese government bond (JGB) market recorded its worst liquidity levels on record in January 2026, as the average bid-ask spread surged to 4.8 basis points, surpassing previous peaks seen during prior stress events. This figure represents a 43% increase compared to the pre-crisis average of 3.35 bps in late 2024, signaling an acute breakdown in market depth. Market participants cite a growing aversion to holding long-dated JGBs amid expectations of prolonged interest rate stagnation and potential fiscal strain. Since Q3 2025, primary dealer participation in auctions has declined by nearly 30%, with several institutional investors exiting positions or reducing exposure. The Bank of Japan’s ongoing yield curve control (YCC) framework, while maintaining short-term stability, has failed to restore confidence in long-dated paper. Secondary trading volumes have dropped 27% year-on-year, with only 18% of all benchmark 10-year JGB trades occurring within normal business hours. High-frequency traders now dominate liquidity provision, increasing systemic risk. As of January 18, 2026, the number of active market makers fell below 60—down from a peak of 92 in early 2024—further eroding price discovery mechanisms. The deterioration impacts not only domestic financial institutions but also foreign investors managing portfolios tied to Japanese debt. Pension funds and sovereign wealth funds are reassessing their allocation weights, with some shifting toward U.S. Treasuries and German Bunds for better liquidity and lower volatility. The situation underscores structural vulnerabilities exacerbated by weak demand, policy uncertainty, and global risk-off sentiment.