U.S. and Japanese government bonds—long considered among the world’s safest assets—have recently tumbled in global financial markets, raising fresh concerns about rising debt burdens in advanced economies.
The sell-off began in Japan. On May 20, the country’s auction of 20-year government bonds drew lackluster demand, prompting analysts to describe the fallout as the “worst bond rout in 38 years.” The yield on 30-year Japanese government bonds surged to its highest level since such bonds were first issued in 2000.
The market reaction reflects growing unease over Japan’s fiscal outlook. With upper house elections approaching in July, ruling party politicians have begun floating populist pledges, including a potential cut to the consumption tax. Expectations that the government will borrow more to finance these promises triggered a steep decline in bond prices.
Despite Japan’s national debt already standing at a staggering 250% of GDP—the highest among developed countries—political momentum for increased spending continues to grow. Fiscal discipline, it seems, is taking a back seat to election-year populism.
The tremors didn’t stop in Tokyo. On May 21, U.S. long-term Treasury bonds also came under pressure. The decline followed President Donald Trump’s renewed push for sweeping tax cuts. According to the Congressional Budget Office, the proposed legislation would increase the federal deficit by between $2.5 trillion and $3 trillion over the next decade—equivalent to roughly 3,400 trillion to 4,100 trillion won at current exchange rates.
The U.S. debt load has steadily climbed in recent years, surpassing 100% of GDP in 2013 and reaching 123% by last year. Until now, both the United States and Japan have largely avoided market backlash thanks to their status as reserve currency issuers.
But that immunity appears to be fading. As both governments show little intention of tightening their belts, investors are beginning to reassess the risks—marking what some are calling the “revenge of the bonds.”
This shift in sentiment carries significant implications for countries like South Korea, which do not issue reserve currencies and are therefore more vulnerable to fiscal shocks. For Seoul, maintaining fiscal soundness is not just a policy option—it’s an economic necessity.
While South Korea’s debt-to-GDP ratio remains lower than those of the United States or Japan in absolute terms, it has now crossed a symbolic threshold. For the first time this year, the country’s debt ratio is projected to exceed the average for non-reserve currency nations—54.5% compared to 54.3%.
Much of that increase dates back to the administration of former President Moon Jae-in, under which debt levels surged. Among 11 non-reserve currency economies, South Korea now ranks fourth in total debt and second in the pace of debt growth.
Meanwhile, the government continues to run an annual fiscal deficit of around 100 trillion won—roughly $73.3 billion—as spending far outpaces revenue.
Despite the growing strain on public finances, election campaigns remain dominated by pledges to increase spending, often with little regard for funding sources. Experts warn that if this trend persists, the consequences for South Korea could prove even more severe than those now facing the United States and Japan.
