Japanese government bonds tumbled on Wednesday, sending benchmark yields to near 17-year highs, as traders priced in increased political risks and a hazy outlook for the central bank's policy normalisation path.

Japan’s market is rallying, but bond markets are flashing warnings. With rising yields, political uncertainty, and fading trust, the current surge may not hold for long.

Liberal Democratic Party loses control of the Upper House in Japan as right-wing parties gain ground with younger voters amid rising prices and political fatigue.

Japan's core inflation slowed in June but stayed above the central bank's 2% target for well over three years, highlighting lingering price pressures that back market expectations for further interest rate rises.

A slight easing in consumer inflation is welcome news for the Japanese central bank, but stubbornly high food prices will be of concern for policymakers.

Japan's core inflation cooled to 3.3% in June, coming down from a 29-month high of 3.7% as food inflation showed signs of easing. The figure — which strips out costs for fresh food — was in line with the 3.3% expected by economists polled by Reuters.

Having done a trade deal with US President Donald Trump, Japan's prime minister will soon announce his resignation, reports said Wednesday, after his latest election debacle left his coalition without a majority now in both houses of parliament.

The election Sunday is about inflation that has been running between 3.5 percent and 4 percent.

Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.

The bruising electoral defeat suffered by Japanese Prime Minister Shigeru Ishiba’s ruling coalition has plunged the country into a state of political uncertainty, creating a significant new dilemma for the Bank of Japan (BOJ).