Japan 10Y Bond Yield Hits 17-year High

Japan’s 10-year government bond yield fell to around 2.30% on Wednesday, marking its third straight session of decline and tracking US Treasury yields, as investors grew wary of the Middle East conflict’s impact on global growth. Now in its fifth week, the war has roiled markets and stoked fears of a simultaneous spike in inflation and economic slowdown. However, Fed Chair Powell said that longer-term inflation expectations remain well-contained, reducing the urgency for any monetary policy response from the Fed. Hopes of a possible de-escalation also emerged after President Trump said US forces would end operations in Iran within two to three weeks. Domestically, the Bank of Japan’s sentiment index for large manufacturers rose to 17 in Q1 2026, its highest level since late 2021, reflecting robust business confidence. Meanwhile, the Manufacturing PMI was revised up to 51.6 in March from a preliminary 51.4, though still down from February’s near four-year peak of 53.

Japan’s 10-year government bond yield fell to around 2.34% on Tuesday, sliding for a second consecutive session and tracking a decline in US Treasury yields amid dovish signals from the Federal Reserve. Fed Chair Jerome Powell said long-term US inflation expectations remain in check despite heightened Middle East uncertainties and noted that the central bank’s policy stance allows officials to assess the economic impact of the Iran war. Global bond yields also faced pressure from growing concerns over the economic fallout from the conflict, outweighing inflation risks from surging oil prices. Meanwhile, the Bank of Japan’s March meeting Summary of Opinions reflected a hawkish tilt among policymakers, with one member suggesting a potentially larger rate hike may be needed in response to Middle East tensions.

Japan’s 10-year government bond yield eased to around 2.36% on Monday but stayed close to its highest levels since 1999, as an oil-driven inflation shock tied to the Middle East conflict reinforced expectations of a near-term rate hike from the Bank of Japan. Oil prices continued to rise as the Iran war showed no signs of easing, with President Donald Trump saying he could “take the oil in Iran” and Iran-backed Houthi militants in Yemen joining the conflict. Meanwhile, the BOJ’s March meeting Summary of Opinions indicated a hawkish tilt among policymakers, with one member suggesting a potentially larger rate hike may be needed in response to the Middle East tensions. A sharply weakening yen, which breached the critical 160 per dollar level, further increased pressure on the central bank to act, given the impact of higher import costs on households and businesses.