Macquarie Bank stated that the Bank of Japan could intervene as early as Wednesday to halt the sharp decline in the country's bond market.

According to Gareth Berry, a strategist at the bank based in Singapore, three primary factors exacerbated the selloff in Japanese government bonds on Tuesday.

The first is concern over the prospects of an early general election and "powerful fiscal stimulus."

The second is data showing that life insurance companies were the main net sellers of Japanese government bonds in December.

The third is weak demand at an auction for 20-year Japanese government bonds.

"Despite all these factors, there is still no sign that the Bank of Japan will utilize its unlimited bond-buying tool, which serves as a backup measure and might only be reactivated when absolutely necessary."

"BOJ Governor Kazuo Ueda has been very hesitant about using this tool, which was created by his predecessor Haruhiko Kuroda, but he may soon have no other choice."

"If the selloff persists, especially if it spreads globally, then we should expect the BOJ to restart this tool—perhaps as early as tomorrow morning's routine market operations."

"This situation cannot continue any further," Berry said, referring to the selling wave.

"Global bond yields are all interconnected," he remarked, discussing the spillover risk.