Japan’s 10-year bond yield hits 18-year high on fiscal worries

The 10-year JGB yield rose 3 basis points (bps) to 1.980%, its highest since June 2007. Yields move inversely to bond prices.

“The reports about the government spending raised concerns about the worsening fiscal health,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. Total spending in Japan’s draft budget for fiscal 2026 will likely exceed 120 trillion yen ($774 billion) to hit a record, Reuters reported citing sources, topping the 115-trillion-yen annual budget for the current fiscal year. Worries about an increase in spending have been prompting investors to sell longer-dated JGBs, while shorter-dated bonds were sold on expectation of Bank of Japan interest rate hikes.

The 10-year bond yield, which is in the middle of the curve, tends to react to both cues. The selloff in 10-year bonds accelerated in the afternoon session after a weak outcome at the BOJ’s bond-buying operation for maturities surrounding 10 years, said Keisuke Tsuruta, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. “Investors do not want to hold the bonds ahead of the BOJ’s policy meeting. Depending on what (BOJ Governor Kazuo) Ueda says, the 10-year bond yield could hit 2%,” said Tsuruta.

The BOJ is likely to raise rates on Friday to a three-decade high and pledge to keep hiking borrowing costs. The market is focusing on what signals Ueda will drop on future hikes at his post-meeting news conference.

The two-year JGB yield rose 1 bp to 1.07% and the five-year yield rose 1.5 bps to 1.445%.

The 20-year JGB yield rose 1.5 bps to 2.925% and the 30-year JGB yield rose 1 bp to 3.355%. ($1 = 155.1200 yen).