Risk aversion in the Asia-Pacific market has increased, Japan's

# Source: Wall Street Insights

By Long Yue

Asia-Pacific markets were generally under pressure on Tuesday. Risk aversion dragged Japan’s Nikkei 225 down nearly 1%, while the yield on Japan’s 40-year government bonds surged to a record high of 4%. A day earlier, Sanae Takaichi announced that Japan’s House of Representatives election would be held on February 8, vowing to end the excessively tight fiscal policy. South Korea’s stock market pulled back 1% after breaking through the 4,900-point mark. In commodities trading, silver fell 1% and gold edged slightly lower.

The dual uncertainties from the escalating geopolitical dispute over Greenland and the sudden announcement of a snap general election in Japan dampened risk appetite across Asia-Pacific markets on Tuesday, triggering sell-offs in equities and bonds across multiple countries.

As a focal point of the Asian markets, Japan witnessed a brutal **stock-bond selloff** on the day. The Nikkei 225 declined 1% to close at 53,045.20 points, with the Tokyo Stock Price Index tracking the losses.

Additionally, the yield on Japan’s 10-year government bonds climbed 3 basis points to 2.3%, hitting its highest level since February 1999. The yield on the country’s 40-year government bonds touched 4%, a first since the securities were issued in 2007. A day prior, Sanae Takaichi declared that the House of Representatives election would take place on February 8, stating that the government would terminate the overly restrictive fiscal policy.

South Korea’s stock market retreated, with the KOSPI falling 1% intraday. Driven by expectations of a surge in AI capital expenditure the previous day, the index had briefly broken through the 4,900-point threshold to hit a new record high, logging a whopping 15% gain year-to-date. Nomura Securities analyzed that South Korea’s stock market is undergoing a classic **shift in share ownership**: foreign investors, regarded as "smart money", have continued to increase holdings via ETFs, while retail investors are pulling out.

In the commodities space, spot silver dropped 1.4% intraday, pulling back from its earlier record high of $94.72 per ounce. Spot gold also edged down 0.4% in tandem.

Separately, the yield on the U.S. 30-year Treasury bonds rose 3.8 basis points to 4.879%, reaching its highest level since early September last year. The yield on the U.S. 10-year Treasury notes climbed to 4.259%, also hitting a peak since early September 2024.

## Greenland Saga Continues to Unfold

The biggest market panic stemmed from across the Atlantic Ocean. On Saturday, Donald Trump made it clear that if no agreement is reached on the "complete purchase of Greenland", the U.S. will wield the tariff stick.

According to CCTV News, U.S. President Donald Trump stated in a post that he will impose a 10% tariff on eight European countries that oppose the U.S. acquisition of Greenland. The tariff rate will be raised to 25% in a few months, until an agreement on the "full and complete purchase of Greenland" is reached. In response, the eight European countries jointly voiced their opposition, calling the U.S. tariff threat "unacceptable". French President Emmanuel Macron said that if these threats are confirmed, European countries will respond in a united and coordinated manner.

Affected by this, U.S. stock index futures weakened in pre-market trading, and risk aversion quickly spread to Asia-Pacific markets. Australia’s S&P/ASX 200 Index fell 0.46% to close at 8,833.6 points. Heightened geopolitical tensions have once again put global capital on edge.

## Japan to "End Excessively Tight Fiscal Policy"

As a key focus of Asian markets, Japan suffered a severe stock-bond selloff on the day.

The core trigger for the sharp market volatility was the bombshell announcement made by Japanese Prime Minister Sanae Takaichi on Monday. According to Xinhua News Agency, Takaichi stated at a press conference on January 19 that she will dissolve the House of Representatives on January 23, seek voter mandate to continue governing, and hold the House election on February 8. The original term of office for members of the current House of Representatives was set to expire in October 2028.

Takaichi stated bluntly at the press conference: "We will end the excessively tight fiscal policy... We must break free from the constraints of excessive austerity and boldly invest in risk management."

Her pledges to scrap the consumption tax on food and increase strategic fiscal spending were interpreted by the market as signals of aggressive fiscal expansion. This directly triggered a massive sell-off in Japanese government bonds, sending yields soaring across the board.

The surge in bond yields exerted direct downward pressure on equity valuations. Although Takaichi sought to boost the economy through stimulus policies, investors’ concerns over fiscal sustainability have taken precedence for the time being.

## Risk Warning and Disclaimer

The market is risky, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are in line with their specific circumstances. Investment decisions made based on this article shall be at the user's own risk.

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