Japan 10-Year Bond Yield Tops 3% for First Time Since 1996

Japan's benchmark 10-year government bond yield rose above 3% on Tuesday for the first time since 1996, marking a significant milestone as investors grapple with persistent inflation, growing fiscal concerns, and expectations for further monetary tightening by the Bank of Japan. The yield climbed as much as six basis points to reach the threshold, extending a sharp upward trend that has seen the benchmark rate more than triple from its 2024 levels. The move is part of a broad global bond selloff, with analysts pointing to a combination of factors driving the repricing. Renewed military attacks in the ongoing U.S.-Israeli conflict with Iran have sent Brent crude futures above $91 per barrel, fanning inflation fears. This has been compounded by expectations that the Bank of Japan will need to raise interest rates again soon, potentially in September or October, to contain rising prices. Overnight index swaps imply about a 92% probability of a BOJ move by September. Fiscal policy has emerged as another major concern. Prime Minister Sanae Takaichi's government has proposed additional spending alongside tax cuts, policies that could increase borrowing requirements.