Japan’s 10-year government bond yield hits 3% for first time since 1996

Japan's 10-year government bond yield has reached 3% for the first time since 1996, marking a significant milestone for the once-stagnant economy. This rise in yields reflects a general reflating of the economy, as investors make decisions based on the outlook for inflation, economic growth, and the risk-return of Japanese government bonds (JGBs) compared to other assets.

The Bank of Japan ended its negative interest-rate policy in 2024, allowing bond prices to be determined more by market forces. This shift has made JGBs more attractive to both domestic and international investors, with international funds now accounting for about two-thirds of monthly cash JGB transactions. As bond yields climb globally, Japan's market has also experienced increased volatility, impacting interest rates worldwide.

The finance ministry estimates a record 36.6 trillion yen in debt-servicing costs for the next fiscal year, highlighting the challenge of reconciling growth with rising borrowing costs.