The Japanese bond market has been a bit lively recently. On Tuesday, the 40-year government bond yield jumped by 5.5 basis points, reaching the 4% mark. This number might not sound particularly remarkable, but what does it signify? It is the highest level since 2007 and the first time in over thirty years that Japan has reached this level.

Looking back, in December 1995, the 20-year Japanese government bond yield last touched the 4% line. After nearly 30 years, the bond yield has once again crossed this psychological threshold, reflecting significant underlying issues.

The sell-off in the bond market actually has reasons behind it. Investors are most concerned right now about the Japanese government’s plan to cut the sales tax on food. Think about it—if the government collects less tax, there will be a fiscal deficit. Where will this money come from? Debt pressures will increase. The centrist Reform Alliance (comprising Japan’s largest opposition party and former ruling coalition members) even proposed to cut the food sales tax directly to zero, while using a new government fund to fill the gap. Although this approach is politically popular, it has raised concerns in the market—after all, Japan’s debt is already high enough.

Therefore, this rise in government bond yields essentially reflects a broader sell-off in the bond market, as investors are re-pricing Japan’s fiscal risks.