Japan's 10-Year Bond Yield Hits 3% on Faster BOJ Hike Bets

Japanese government bond (JGB) yields extended their climb on Wednesday, driven by growing market conviction that the Bank of Japan (BOJ) will accelerate the pace of its interest rate hikes. The benchmark 10-year yield rose one basis point to 3% in early trading, after touching 3.005% in the previous session — its highest level since September 1996.

The five-year yield also advanced, gaining two basis points to hit a record high of 2.275%. The moves come as investors position for a more aggressive tightening cycle from the central bank.

Market participants now expect the BOJ to raise its policy rate to 1.25% at its meeting this month. Attention is focused on a scheduled speech by Hajime Takata, a known hawk on the BOJ's board, who dissented against the July decision to hold rates steady and had called for an immediate hike to 1.25%. Some traders are bracing for the possibility that Takata could advocate for an even larger 50-basis-point increase.

"The 10-year bond yield is expected to rise further as market expectations for the BOJ's interest rate hike at a faster pace will grow," said Takashi Fujiwara, chief fund manager at Resona Asset Management's fixed income investment division.

Fujiwara also noted that if the U.S. Federal Reserve raises its policy rate in September, a modest 25-basis-point increase by the BOJ would likely be insufficient to support the yen.

Adding to the upward pressure on yields, Japan's ministries and agencies have requested roughly 143 trillion yen ($893 billion) for the fiscal 2027 budget, which may prompt the government to boost sales of two- and five-year bonds to fund rising spending.

Globally, bond markets faced a broad selloff after U.S. Treasury yields advanced overnight, fueled by concerns over rising inflation following another round of strikes in the Iran conflict.