Japan’s Bond Yields Are Rising—Here’s What It Means
Japan’s 10-year government bond yield just hit 0.975%, the highest in 11 years. Why? Because the Bank of Japan (BOJ) is finally pulling back on its long-standing easy-money policies.
What’s Happening?
The BOJ ended negative interest rates in March.
It’s also cutting back on bond purchases, which means less demand = higher yields.
Investors now expect more rate hikes ahead.
Why It Matters:
Higher yields = more expensive borrowing in Japan.
This could strengthen the yen and attract foreign investment.
For global investors, Japanese bonds are becoming more attractive after years of low returns.
What Happen Next?
Goldman Sachs thinks Japan’s 10-year yield could hit 2% by 2026, with policy rates rising to 1.25–1.5% by 2027. Inflation is slow but steady, and the BOJ seems ready for a long, careful tightening cycle.
The BOJ had long maintained low interest rates and aggressive bond-buying under its yield curve control (YCC) policy to combat deflation and stimulate growth. However, recent economic and global pressures have forced a rethink.
One major driver of the BOJ’s policy shift is inflation. After years of stagnation, Japan has finally seen consistent inflation above its 2% target, driven by higher import prices, wage pressures, and a weaker yen. As core inflation remains sticky, maintaining near-zero rates has become unsustainable. In response, the BOJ began gradually relaxing YCC in 2023 and ended its negative interest rate policy in early 2024—effectively signaling an exit from its longstanding stance.
Rising yields are also a reaction to changing global interest rate dynamics. With the U.S. Federal Reserve and other central banks tightening policy over the past two years, the interest rate differential had weakened the yen significantly. A stronger yen is now seen as desirable for both purchasing power and inflation control, and higher domestic yields help support the currency.
Investor sentiment has also shifted. As the BOJ reduces its role in the bond market, market participants are pricing in more natural, risk-based yields. This upward adjustment signals the return of a more market-driven rate environment in Japan.
In essence, the 0.975% yield is not just a number—it’s a turning point. It reflects the BOJ’s growing confidence in Japan’s economic stability and the start of normalization after years of extraordinary
Takeaway: Japan is shifting gears. For investors, this could open new opportunities in the bond market and reshape capital flows in Asia.
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Hyun-woo Park
Financial Analyst at Savoir Strategy Group
