Japan Bond Yield Hits 30-Year High Amid Record Budget Plans

Japan's bond market is on edge as Prime Minister Sanae Takaichi's aggressive fiscal policy puts pressure on the country's financial industry. The benchmark long-term yield has climbed to just shy of 3%, its highest level in three decades, following the release of budget requests for fiscal 2027.

The government plans to push through a record 140 trillion yen budget, which would be a significant increase from the initial fiscal 2026 budget of 122.3 trillion yen. The Ministry of Land, Infrastructure, Transport and Tourism requested 8.7 trillion yen, about 40% more than in the initial fiscal 2026 budget.

The challenge is funding, as Japan's government has depended on new bond issuance to cover spending due to falling tax revenue and non-tax income. With the Takaichi government planning to lower the consumption tax rate on food starting next spring, there are concerns that this will further strain the country's finances.