Selling Hits JGBs; 10-Year Yield Climbs to Nearly 30-Year High

BlockBeats reports that Japan's government bond market has come under renewed selling pressure. On Tuesday, the 10-year Japanese government bond (JGB) yield briefly rose to 2.945%, its highest level in almost three decades since the mid-1990s, and hovered around 2.89% on Wednesday. Investors are increasingly focused on the 3% threshold. Market participants warn that a move above 3% would materially exceed the government's fiscal assumptions, lift financing costs, and complicate Prime Minister Hayashi Hayami's push for fiscal expansion. Japan has earmarked about ¥31 trillion for debt repayment. If yields continue to climb, future debt-servicing burdens could rise sharply. The Ministry of Finance estimates that by fiscal 2029, if the 10-year yield reaches 3.6%, Japan's annual debt-servicing costs could increase to ¥41 trillion. At the local level, the Gao municipal government is pursuing economic support via tax cuts and investment. Policies including reduced food taxes have already weighed on fiscal revenues, prompting concerns that additional debt issuance may be needed and fueling debate within the ruling party over fiscal discipline. Inflation pressures and yen depreciation risks are also lifting expectations for further rate hikes by the Bank of Japan (BOJ). Market pricing indicates traders see the BOJ delivering two additional 25-basis-point hikes as early as January next year, potentially taking the policy rate to 1.5%. Former BOJ executive board member Kazuo Mima said the terminal rate for this tightening cycle could be around 1.75%, while some analysts see the peak rate nearing 2%. Investors are also watching the leadership transition window in 2027. BOJ watchers note that as policy board members viewed as more supportive of rate hikes are expected to leave gradually starting in summer 2027, the central bank may seek to complete its main rate increases before then to reduce the risk of disruption from a shifting policy stance. For Tokyo and the BOJ, the policy trade-off is becoming more acute. Expansive fiscal policy could add to inflation and push yields higher, while aggressive bond buying by the central bank could undermine the credibility of its tightening path.