Japan's benchmark 10-year government bond yield touched 3% on Tuesday, its highest level since 1996, as investors priced in faster Bank of Japan rate hikes and grew wary of the government's fiscal position. The move tracked a broader sell-off in global bonds, with U.S. and European yields also climbing to multi-year highs.
Japan's 10-year bond yield hit 3% on Tuesday, the first time it has reached that level since September 1996. The yield eased back to 2.995% as of 0533 GMT after a bond auction drew strong demand.
Yields climb across the curve
The move was not limited to the 10-year note. The five-year JGB yield reached a record 2.265%, while the two-year yield hit a 31-year peak of 1.795% as markets priced in a near-certain BOJ rate move this month. Markets now put a high likelihood on the BOJ raising rates by 0.25 percentage points to 1.25% at its September 18 meeting.
The sell-off has spread beyond Japan. U.S. 10-year Treasury yields rose 0.03 percentage points to 4.78%, while 30-year Treasury yields climbed to 5.27%. Renewed conflict in the Middle East and elevated oil prices have stoked inflation fears globally, adding pressure on central banks to tighten faster.
Fiscal concerns weigh on the yen
Prime Minister Sanae Takaichi's investment-led growth agenda, including planned spending on semiconductors and AI along with tax cuts, has fueled concern that Japan could worsen its fiscal position, with debt exceeding 200% of GDP. Japan's government assumed a 3% long-term interest rate to calculate debt-servicing costs in its fiscal 2026 budget, and a move above that level would add further strain to the country's finances.
According to Reuters: "the bond market has to some extent been sounding a warning against fiscal expansion", said Ryutaro Kimura, senior fixed income strategist at BNP Asset Management in Tokyo.
Japan's finance minister Satsuki Katayama declined to comment when asked about the yield approaching 3% after the first day of the G20 finance leaders meeting. At that meeting, U.S. Treasury Secretary Scott Bessent signaled that Tokyo's next step should be to raise interest rates, according to Japanese state broadcaster NHK. The yen has languished near a four-decade low, adding to pressure on the BOJ to move faster on rate hikes.
Sources: Investing.com, Financial Times
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