Japan's 10-Year Bond Yield Hits Highest Since 1996 as JGBs Sold Off
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Japanese government bonds (JGBs) were swept into a global bond selloff on September 24, with the 10-year yield surging 10 basis points to 3.075%, its highest since 1996, according to Bloomberg data. The 5-year and 20-year yields also rose about 10 basis points. The selloff was triggered by a sharp rise in US Treasury yields, which hit 5.14% (a 2007 high) due to strong US economic data, weak bond auction demand, and rising oil prices fueling inflation fears and expectations of further Federal Reserve rate hikes. Domestically, the Bank of Japan's September rate hike to 1.25% and hawkish signals from Governor Kazuo Ueda have pushed yields higher as markets price in further tightening. Adding to the pressure, reports that Japan is considering raising defense spending to 3.5% of GDP—though denied by officials—have heightened investor concerns over fiscal sustainability under Prime Minister Shigeru Ishiba's spending plans. Analysts at ICBC International and Huafu Securities warn that expansionary fiscal policy combined with monetary normalization and reduced BoJ bond purchases will increase upward pressure on JGB yields, raise risk premiums, and exacerbate Japan's high debt burden, increasing policy uncertainty.
Source report
Following a sharp rise in US Treasury yields overnight, Japanese government bonds (JGBs) have been swept up in the global bond market selloff.
According to Bloomberg data, on September 24, the yield on Japan's 10-year government bond rose 10 basis points to 3.075%, the highest level since 1996. The yields on Japan's 5-year and 20-year bonds also climbed approximately 10 basis points, reaching 2.375% and 3.915%, respectively.
US Treasury Selloff Intensifies
The selloff in US Treasuries has accelerated in recent days. As of press time, Wind data showed the yield on the US 10-year Treasury note at 5.14%, the highest since 2007.
Analysts attribute the sharp rise in US Treasury yields to strong US economic data and weak demand at bond auctions. At the same time, rising oil prices have exacerbated inflation concerns and reinforced market expectations of further interest rate hikes by the Federal Reserve, also driving bond yields higher.
Bank of Japan Policy and Domestic Pressures
In Japan, the Bank of Japan (BOJ) voted 7-2 at its September meeting to raise interest rates by 25 basis points to 1.25%. BOJ Governor Kazuo Ueda stated that the timing and pace of future rate hikes would be determined based on the impact of developments in the Middle East, AI demand expansion, and exchange rate fluctuations on Japan's economy and prices.
As the market prices in the possibility of further rate hikes by the central bank to address persistent inflation, bond yields have climbed to multi-year highs.
Fiscal Concerns Add to Selling Pressure
Japan's domestic fiscal pressures have also exacerbated the selloff in JGBs. According to a previous Bloomberg report, Japan is considering setting a new medium-term defense spending target that would raise defense expenditure to 3.5% of GDP, aligning with levels seen among NATO and other US allies. Such a move could impact financial markets, as investors are already concerned about the fiscal spending plans of Prime Minister Shigeru Ishiba's administration.
Following the report, Japanese officials denied the claim. Kimihito Aguin, press secretary of Japan's Defense Ministry, stated at a press briefing that Japan has not expressed to the US an intention to significantly increase spending to 3.5%.
Despite the denial, the market remains wary of Japan's fiscal pressures. "Against a backdrop of high debt, implementing expansionary fiscal policy will heighten market concerns about fiscal unsustainability, potentially further increasing the risk premium investors demand on JGBs and raising the government's debt servicing costs," ICBC International said in a recent research report.
Huafu Securities also noted in a research report that the central tendency for JGB yields faces further upward pressure. "The normalization of Japan's monetary policy raises interest rate expectations, fiscal expansion increases supply pressure, and the central bank's reduction in bond purchases weakens demand support. Volatility in long-end and ultra-long-end bond yields may become more pronounced," the report stated.
From a longer-term perspective, the low-cost financing environment provided by low inflation, ultra-low interest rates, and large-scale central bank bond purchases is changing, making the high debt problem more prominent. "The interplay between fiscal expansion, monetary tightening, and exchange rate and inflation pressures, along with uncertainty over policy direction and the economic outlook, is likely to continue rising," Huafu Securities added.
Source
中国证券网Eastern
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Japan 10-Year Bond Yield Hits 1996 High as Global Sell-Off Sweeps Tokyo