Years of ultralow rates have created an enviable position for borrowers in the yen bond market, as costs have stayed relatively low and stable. Now, speculation that the Bank of Japan will finally tighten policy is leaving the market exposed.

Investor demand for corporate bonds is weakening, even as companies rush to raise money to take advantage of low rates while they still can. Some deals have been scrapped amid market volatility, including one tranche of a sale by a sushi restaurant chain on Monday, and borrowers are exploring new pricing structures to attract money.

"There is a sense of caution in the credit market that negative interest rates will be lifted at some point,” said Kentaro Harada, chief credit analyst at SMBC Nikko Securities. "Investors are increasingly becoming selective, and the premiums that they demand and what issuers want to offer are getting harder to match.”