Japan 10Y Bond Yield Hits Near 27-year High

Japan’s 10-year government bond yield remained around 2.2% on Monday as investors absorbed data showing that fourth-quarter 2025 economic growth came in much weaker than expected. The economy expanded just 0.1% quarter on quarter in Q4, rebounding from a 0.7% contraction in Q3 but falling short of forecasts for a 0.4% increase. Consumer spending, the largest component of GDP, rose only 0.1%, highlighting soft domestic demand as households continued to contend with high inflation. Prime Minister Sanae Takaichi recently reaffirmed her commitment to boosting growth through proactive fiscal measures following her landslide victory in the Feb. 8 Lower House election. She reiterated plans to cut the 8% sales tax on food for two years and pledged that the finance ministry of Japan will not issue new bonds to cover the spending gap. Instead, her administration intends to fund initiatives through a mix of subsidies, special tax measures, and non-tax revenues in a “sustainable” manner.

Japan’s 10-year government bond yield dropped to around 2.19%, approaching one-month lows as optimism grew that Prime Minister Sanae Takaichi’s fiscal expansion plans will support economic growth without straining public finances. Yields had previously surged amid concerns over the country’s fiscal outlook, but market sentiment has eased on expectations that the risk of extreme debt scenarios is lower. Takaichi secured an overwhelming victory in the general elections last weekend, giving her a clear mandate to push for increased spending and tax cuts. She reaffirmed her plan to cut the 8% sales tax on food for two years, a move that had previously raised debt-funding concerns. Takaichi also stressed this week that the finance ministry will not issue new bonds to cover the spending gap. Instead, her administration plans to rely on a combination of subsidies, special tax measures, and non-tax revenues to fund initiatives in a “sustainable” manner.

Japan’s 10-year government bond yield fell about 5 basis points to 2.24% on Tuesday, retreating from three-week highs as investors reassessed the country’s policy outlook following Prime Minister Sanae Takaichi’s landslide election victory. Markets are factoring in Takaichi’s pledge that her stimulus measures will not further strain public finances, while her supermajority is seen as providing greater policy clarity and reducing the risk of adverse fiscal scenarios. Her ruling coalition secured a two-thirds majority in the lower house, giving her a strong mandate to pursue higher spending and tax cuts. On Monday, she reiterated her commitment to suspend the 8% sales tax on food for two years. Japanese markets will be closed on Wednesday for a holiday.