Panic selling by hedge funds has hit the Y44,000bn ($432bn) Japanese floating-rate government bond market. Some issues are trading at levels usually seen in countries at risk of default.

The plunging value of so-called “floaters” could hurt Japanese banks, which are estimated to hold at least Y10,000bn to Y15,000bn of the bonds. They may have to take mark-to-market losses on them, on top of big losses on their equity holdings.