Japan 40-year bond yields hit fresh highs as Asia markets trade cautiously on Trump-EU tensions

Asia-Pacific markets traded subdued as Japan’s long-dated government bond yields hit new highs, with investors also weighing renewed U.S. tariff threats tied to Greenland.

European states are reportedly discussing counter-tariffs and broader punitive economic measures in response to fresh tariff threats from President Donald Trump, further straining relations over Greenland.

Trump on Saturday announced that exports from eight European nations would start at 10% on Feb. 1 and climb to 25% by June 1 if talks fail to secure U.S. control of Greenland, a mineral-rich, semi-autonomous island under Danish control.

Hong Kong’s Hang Seng index futures were at 26,640, higher than the HSI’s last close of 26,563.9. China’s central bank kept its loan prime rates unchanged on Tuesday. The People’s Bank of China held its 1-year and 5-year loan prime rates at 3% and 3.5%, respectively, keeping them unchanged for an eighth straight month.

Investors are closely watching developments in Japanese markets after Prime Minister Sanae Takaichi said on Monday that she plans to dissolve parliament and call a snap election on Feb. 8.

Japan’s Nikkei 225 slid 0.7%, while the Topix declined 0.52%. South Korea’s Kospi fell 0.41%, while the small-cap Kosdaq traded flat.

Yields on Japan’s 40-year government bond rose to 4% for the first time.

Japan’s ruling coalition holds a one-seat Lower House majority following its formation in October, when Takaichi became prime minister after her predecessor resigned. While the snap election would raise near-term political uncertainty, it could bring greater policy clarity if a government emerges with a stronger mandate, Fitch Group said in a note.

Fitch expects government debt to remain elevated over the medium term, but to gradually decline as stronger nominal GDP growth offsets wider fiscal deficits and higher borrowing costs.

Consolidated general government debt is projected to ease to the mid-190% range of GDP by fiscal 2029, from an estimated 199.5% in fiscal 2025 and a peak of 222% in fiscal 2020.

Australia’s S&P/ASX 200 lost 0.46%.

U.S. stock futures pointed to a downbeat session on Wall Street as Trump intensifies his rhetoric on Greenland.