Japan's 10-Year JGB Yield Touches 3%, Highest Since 1996

Japan's 10-year government bond yield climbed to 3% on Sept. 1, reaching a level last seen in 1996. The move caps a sharp repricing that has lifted the benchmark by more than 1.4 percentage points since August 2025, a dramatic shift for a market that lived with negative rates as recently as two and a half years ago. Three forces are driving the selloff. Inflation expectations have firmed alongside energy prices, with oil trading above $85 a barrel amid persistent geopolitical tensions. As Japan imports nearly all of its energy, it remains especially exposed to commodity-led price pressures. Monetary policy has also turned decisively less accommodative. The Bank of Japan raised its policy rate to 1% in June 2026, the highest level since 1995, and has been cutting back its Japanese government bond purchases, reducing a long-standing support that helped hold yields down for more than a decade. At the same time, fiscal policy is leaning expansionary. Under Prime Minister Sanae Takaichi, government ministries submitted record budget requests of about 143 trillion yen (roughly $890 billion) for the coming fiscal year. The selloff is broadening across the curve. The five-year yield hit a record high, and the two-year yield rose to its highest level in 31 years. When Takaichi took office in October 2025, the 10-year yield was around 1.6%; it has nearly doubled in less than a year. The BOJ scrapped its negative interest rate policy and yield-curve control framework in March 2024, framing the shift as the start of normalization. The June 2026 move to a 1% policy rate marked the latest step in that process. The implications extend beyond Japan. Public debt exceeds 200% of GDP, the highest among major developed economies. A 3% long-term rate had previously been used as a stress-test assumption in government budget projections; with that level now in the market, debt-servicing costs are set to take a larger share of government revenue. Global fixed-income markets are also watching. Japanese investors are among the world's biggest holders of overseas bonds. As domestic yields rise, funds allocated to U.S. Treasuries, European sovereign debt, and corporate credit may be repatriated. With Japan the last major central bank to exit negative rates, continued BOJ tightening further closes a policy chapter that shaped bond markets for much of the past decade.