BOJ Rate Hike Expectations Fuel Japan Bond Yield Surge

Japan's 10-year government bond yield rose to around 2.89% on Tuesday, reaching multi-decade highs.

The increase is due to growing expectations for an imminent Bank of Japan interest rate hike, with markets pricing in a roughly 80% probability that the BOJ will raise rates by 25 basis points to 1.25% next month.

Former board member Seiji Adachi warned that keeping rates unchanged could reignite a yen selloff and accelerate import-driven inflation.

The Finance Ministry is considering raising the assumed interest rate used to calculate debt-servicing costs to 3.8% for fiscal 2027, from 3% in the current budget.