Long-term Bond Yield Hits 3 Percent

Japan 10-year governmental bond yield hit a benchmark 3 percent on September 1st, for the first time in these thirty years. Since Prime Minister Sanae Takaichi took her seat in October 2025, the yield has been hiking, as she delivers messages for active investment without reliable fiscal resource. Not only her fiscal policy, prolonged inflation caused by unstable international security situation and pressures for raising interest rate of the central bank, mainly from the United States, can further raise the yield, adding concern on Japanese economy. 

The bond market in Japan marked 3.005 percent of yield for 10-year governmental bond in September 1st. According to a brokage firm, this is the highest level since September 1996 when the bubble economy had burst a few years before and concern on health of fiscal balance of the government of Japan was swelling. The direct reason of the yield rising was a speculation that the central banks of Japan and the United States would soon raise their policy interest rate.

 

At the time before Takaichi assumed the prime minister in October 2025, the 10-year governmental bond yield was as low as 1.6 percent. As Takaichi, delighted with her victory in presidential election of the Liberal Democratic Party, uncovered her economic plan to seek growth with active investment, the yield hit 2 percent in December 2025.

 

But she did not reconsider her investment plan. She passed FY2026 budget with record high 122 trillion of spendings with 31 trillion yen of governmental bond issuance. When her cabinet decided active investment in the Basic Policy on Economic and Fiscal Management (Thick-boned Plan) 2026 in July, the yield rate further rose and value of yen showed steep decline. That was called “Thick-boned Shock,” After Japan and the United States were involved in coordinated intervention in late July, the long-term yield rate gradually reached 3 percent.

 

Concerning uncontrollable price inflation and long-term bond yield rising, the U.S. Trump administration kept on pressuring Japan. The chairman of U.S. Federal Reserve, Kevin Warsh, indicated further interest hike in his speech in Jackson Hall, Wyoming, which would be working as a pressure on the Bank of Japan to raise its own interest. U.S. Secretary of Treasury, Scott Bessent, expected Japan to “do the right thing” for raising interest rate. Takaichi removed the ceiling of budget request for FY 2027 from each ministry to promote her investment agenda.

 

Prolonged war in Iran also causes yield rising of long-term bond. The transport of oil tankers through the Strait of Hormuz has been blocked, encouraging price inflation in Japanese economy. Price inflation may lead to interest hike of the Bank of Japan.

 

Rising of long-term bonds yield affects payment for interest of Japanese Government Bonds. The Ministry of Finance calculated that the government’s payment for the interest in FY2027 would be 16.58 trillion yen. Assumed yield rate in FY2027 is 3.8 percent, increasing by 0.8 percent from the previous year. The people who are paying housing loan will be worried about increase of the payment. Pressures on Japanese economy are coming in multiple ways.

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