In late November 2025, the Japanese economy is facing a rare "stock, bond, and foreign exchange triple-kill" crisis. This is not only a short-term market fluctuation, but also exposes its long-term structural problems and policy dilemmas. As of late November 2025, the Japanese economy is facing a rare "stock, bond, and foreign exchange triple-kill" crisis. This is not only a short-term market fluctuation, but also exposes its long-term structural problems and policy dilemmas.

1. What happened to the Japanese economy?

1.High debt has reached critical point

As of the end of 2024, Japan's national debt reached 1317.6 trillion yen, and is expected to exceed 1351 trillion yen in March 2025. The debt-to-GDP ratio is as high as more than 250%, the highest in the world. Interest expenses already account for approximately 23% of annual tax revenue; if the 10-year government bond yield rises another 100 basis points, the government's annual financing costs will increase by more than 2.8 trillion yen.

2. “High market economics” intensifies market panic

Prime Minister Takaichi Sanae insists on a combination of expansionary fiscal + loose monetary policy: plans to launch an economic stimulus package of JPY 21.3 trillion (approximately US$135.4 billion). Oppose the central bank to raise interest rates and advocate giving priority to boosting domestic demand. This move was regarded by the market as "drinking poison to quench thirst", triggering deep concerns about fiscal sustainability.

3.Deterioration of economic fundamentals

In the third quarter of 2025, GDP shrank by 0.4% quarter-on-quarter (annualized -1.8%), the first negative growth in six quarters.

Domestic demand is weak: real wages have fallen for 8 consecutive months, core CPI has risen for 48 consecutive months, and people’s purchasing power has been squeezed.

External demand suffered a setback: the United States imposed additional tariffs on automobiles and other products, coupled with the overdraft of the previous "rush for exports", resulting in a sharp decline in exports.

　4.Geopolitical Backlash

Sanae Takaichi's Taiwan-related remarks angered China. The current severe situation facing Japan's economy is directly and significantly related to the tense relations with China. This correlation is not only reflected in short-term market reaction, but also extends to multiple levels such as trade, tourism, industrial chain and investor confidence.

The Ministry of Culture and Tourism issued a risk warning for traveling to Japan. Nearly 500,000 air tickets to Japan have been cancelled, and the tourism industry’s annual losses may exceed 2 trillion yen. The stock prices of Shiseido, Mitsukoshi Isetan and other companies that rely on Chinese tourists have plummeted.

2. Has the “Three Kills of Stocks, Debts and Exchanges” happened?

Yes, and it is deepening.

Market:Performance (Mid-to-late November 2025)

Stock market:The Nikkei 225 Index plummeted 3.22% in a single day (November 18), falling below 49,000 points; the tourism and retail sectors plummeted.

Bond market: The 10-year Treasury bond yield soared to 1.76% (the highest since 2008); the 20-year Treasury bond yield reached 2.81% (the peak since 1999); some long-term Treasury bonds saw zero transactions and liquidity dried up.

Foreign Market: The yen fell below 157 against the US dollar, a new low for the year; it fell below 180 against the euro, the first time since the birth of the euro.

This is not a short-term fluctuation, but The multiple resonances of fiscal loss of control + lagging monetary policy + geopolitical conflict + global arbitrage trade unwinding

3. How should the foreign exchange market respond to the current situation in Japan?

For investors/traders:

1. Be wary of the risk of further depreciation of the yen

If the Japanese government continues to expand its fiscal deficit without raising interest rates, the yen may test 160 or even lower. However, if the central bank is forced to intervene (such as selling dollars and buying yen), there may be a violent rebound.

2. Pay attention to the chain reaction of "arbitrage trade closing"

The long-term arbitrage model of "borrowing Japanese yen to buy U.S. debt" is disintegrating. Once Japanese bond yields continue to rise, approximately US$1 trillion in arbitrage capital may flow back, triggering a tightening of global liquidity and impacting emerging markets and risk assets.

3. The Japanese yen is not completely worthless—there may be opportunities for reversal in the medium to long term

Institutions such as Citigroup believe that if the yen falls to the 150–160 range, it will be a good opportunity to strategically establish long positions. Japan's current account is still in surplus. Although its aging population is serious, its savings rate is high. The Japanese yen still has safe-haven properties in the long term.

4. Pay close attention to the three key signals

Whether the Bank of Japan will raise interest rates: It is currently expected to be postponed to January 2026;

Whether the Ministry of Finance directly intervenes in the foreign exchange market: The verbal warning has been upgraded. Actual intervention requires observing the movement of foreign exchange reserves (but nearly half of them are used for investment in the United States, and the ability is limited);

Progress in U.S.-Japan Relations and Tariff Negotiations: U.S. policy is the “behind-the-scenes director” of the yen’s trend.

Conclusion: Japan stands on the edge of a cliff

The essence of Japan's current predicament is the triple strangulation of "stagflation + debt + diplomatic isolation". In the short term, the "three kills of stocks, bonds, and exchange rates" have become a reality and may last for several months. In the long term, unless the government turns to fiscal consolidation and cooperates with monetary normalization, systemic risks will continue to accumulate.