Senior financial market strategists caution that declining approval ratings for Japanese Prime Minister Shigeru Ishiba could push his administration toward more aggressive fiscal spending and tax policies, deepening already severe investor anxiety over the nation's currency and bond markets. This unease, they warn, risks spilling over into global equity and bond markets, causing sustained turbulence.

While Ishiba's approval rating remains above 50%, recent local media polls show it has fallen to its lowest level since taking office. On Monday, Ishiba told parliament he had not yet analyzed the reasons for the decline but would treat the results "as a reflection of public opinion."

Naka Matsuzawa, chief market strategist at Nomura Securities, says if poll numbers continue to deteriorate, the Ishiba-led government is likely to double down on its existing stimulus agenda, which would be negative for global bonds and the yen. Ishiba has made slow progress on his campaign pledge to cut the consumption tax on food, a policy some senior politicians criticize as fiscally unsound and populist. Recent government officials indicate a target to finalize the policy by early August. Matsuzawa states: "If the government starts reinforcing its reflationary policy, it poses a major threat to global bond markets and the yen." He adds that rising bond yields would also be very negative for Japanese and global stocks, potentially signaling a decline in the government's ability to implement policy.

Rinto Maruyama, senior foreign exchange and rates strategist at Mitsubishi UFJ Morgan Stanley Securities, shares a similar view. He notes public dissatisfaction with the Ishiba administration stems partly from its failure to curb price increases, which "will become a factor pushing the government to further expand fiscal spending and strengthen related measures." A decline in Ishiba's approval rating does not mechanically pressure the yen and JGBs; what truly moves markets is the government's policy reaction function. July polls showed approval dropping from 69% in June to 57%, with 71% of respondents unhappy with the government's handling of inflation. In this context, the government is more likely to suspend the 8% consumption tax on food, expand subsidies, and increase fiscal spending to repair public opinion. If the tax cut lacks a clear permanent funding source, the market will interpret it as "fiscal expansion to offset a cost-of-living crisis" rather than supply-side reform to boost productivity, potentially significantly raising Japanese inflation expectations, government bond issuance pressure, and global bond risk premiums.

Pressure on the JGB market is most direct, especially for ultra-long maturities of 20 to 40 years. Food tax cuts and additional spending imply future increases in JGB supply, while the Bank of Japan is normalizing policy, forcing the market to absorb more duration risk. Japan's government debt-to-GDP ratio remains well above 200%, so investors will demand higher term premiums. Since the start of the year, long-term bond yields in developed markets have been surging, with some of the world's largest central banks issuing new warnings about fiscal spending, rising debt costs, and demand for long-term bonds. Against the backdrop of Ishiba's "Abenomics" policy stance and a "term premium" push, the probability of 10-year and 30-year JGB yields rising to cyclical highs is increasing. Term premium refers to the extra yield investors demand for holding long-term bonds. In the US Treasury market, this premium has been particularly pronounced, hovering at 10-year highs since early this year. The typical bond market pattern is a bearish steepening of the yield curve, where ultra-long yields rise more than short-term ones, reflecting fiscal risk rather than just central bank rate hike expectations. However, if long-end yields face disorderly selling, the BOJ could still intervene with temporary bond purchases or adjust its tapering schedule to stabilize the market, suggesting JGBs will enter a high-volatility tug-of-war between "fiscal expansion pushing yields higher" and "central bank intervention limiting tail risk," rather than a simple one-way bear market.

The global transmission channel lies in Japan's role as a major creditor nation and a source of long-term low-cost capital. Japan's net international investment position stood at roughly 561.75 trillion yen as of the end of 2025. When JGB yields rise and the returns on currency-hedged US and European bonds decline, Japanese insurers, pension funds, and banks may reduce their allocation to overseas bonds or repatriate funds, thereby pushing up global long-term yields. For equity markets, a weak yen is short-term positive for Japanese exporters, and a steeper curve could improve bank net interest margins. However, imported inflation, higher financing costs, and a policy credibility discount will weigh on domestic demand, real estate, and high-valuation growth stocks. If the BOJ is eventually forced to accelerate tightening and trigger a sharp yen appreciation, yen-funded global carry trades could face a concentrated unwinding, creating a second wave of shocks for high-beta assets like tech stocks, cryptocurrencies, and emerging markets. Therefore, the core investment lesson from this round of poll-driven risk is not to immediately short Japanese assets across the board, but to guard against the non-linear risk of a simultaneous rise in JGB long-end yields and a sudden reversal in the yen exchange rate.