Japan 10Y Yield Gains on Hawkish BOJ Bets

Japan’s 10-year government bond yield rose to around 2.89% on Tuesday, hovering near multi-decade highs amid growing expectations for an imminent Bank of Japan interest rate hike. Former board member Seiji Adachi said the central bank will likely raise rates next month and again as early as January, warning that keeping rates unchanged could reignite a yen selloff and accelerate import-driven inflation. Markets are currently pricing in around an 80% probability that the BOJ will hike rates by 25 basis points to 1.25% next month, up sharply from about 23% before the central bank’s July meeting. Meanwhile, the Finance Ministry is considering raising the assumed interest rate used to calculate debt-servicing costs to 3.8% for fiscal 2027, from 3% in the current budget, highlighting the growing impact of higher government borrowing costs.

Japan’s 10-year government bond yield rose to around 2.88% on Monday, nearing a multi-decade high, as expectations for an early Bank of Japan rate hike lifted yields. Attention now turns to Deputy Governor Ryozo Himino’s speech on Thursday for clues on whether the BOJ will validate or push back against growing expectations for a September increase. The implied probability of a September hike has climbed to around 82% from about 23%. Persistent inflation pressures have also reinforced expectations for policy normalization, while fiscal concerns added to upward pressure on long-term yields. The Finance Ministry is considering raising the assumed interest rate for calculating debt-servicing costs to 3.8% for fiscal 2027, from 3% in the current budget, highlighting the impact of rising government borrowing costs. Japanese bonds also tracked declines in US Treasury prices, while investors awaited Treasury Secretary Scott Bessent’s comments on the expanded bond-buyback program.

Japan’s 10-year government bond yield rose to around 2.88% on Friday, ending a two-day decline and tracking a rebound in US Treasury yields amid concerns that the US government’s plan to reduce borrowing costs may provide only a temporary solution. Global bond yields dropped earlier this week after the US Treasury Department announced larger debt buybacks aimed at containing borrowing costs, with Secretary Scott Bessent saying accelerated buybacks could exceed the announced $4 billion per issue while highlighting an upcoming long-term fiscal plan. Meanwhile, data showed Japan’s inflation rate accelerated for the second consecutive month, strengthening the case for a Bank of Japan interest rate hike in the near term. Markets are speculating on a possible move in September, with Governor Kazuo Ueda indicating that authorities could begin normalizing policy at a faster pace.