Japan's upper house election on Sunday dealt a big blow to the ruling coalition and sets markets up for possible policy paralysis and a bigger fiscal deficit, much of which is already priced in, analysts said.

If the current ruling party loses its majority, the country’s waters could become uncharted at a critical time.

CNBC's Leslie Picker joins 'Squawk Box' to discuss how reaction in Japan's bond market to this weekend's election could serve as a warning shot to the U.S.

Japan’s benchmark 10-year government bond yield climbed to its highest level since 2008 ahead of an upper house election.

Investors in Japanese government bonds are bracing for a potential power shift in upper house elections this weekend that could strain the country's already frail finances, with long-dated yields soaring to all-time highs as the vote nears.

The bond market in Japan is cracking under pressure, and all fingers are pointing to one thing: the upcoming Upper House election on July 20.

Japan’s bond market is facing a potential Liz Truss moment as the risk of a ruling coalition defeat in Sunday’s election fuels concerns over fiscal policy, according to SMBC Nikko Securities Inc.

Japan’s long-term government debt yield touched the highest level since 2008, as a raft of election tax-cut pledges puts investors on edge and risks higher costs all around in the country.Most Read from BloombergAdvocates Fear US Agents Are Using ‘Wellness Checks’ on Children as a Prelude to ArrestsLA Homelessness Drops for Second YearTuesday’s rise of 2.

Japan’s bond market is falling apart in real time. The 30-year Japanese bond yield jumped to 3.20%, a fresh record.

Yields for long-term debt from Japan and Germany to the UK and France rose on Monday as growing concern over widening fiscal deficits dented demand.