Japan Bond Yields Cross 3% for First Time Since 1996

Japan's benchmark bond yields have crossed 3% for the first time since September 1996, fueled by concerns over rising inflation and sticky fiscal spending. The rate has more than tripled since 2024, after the Bank of Japan began unwinding its ultra-loose monetary policy.

The recent surge in yields was driven chiefly by worries over Japanese inflation, especially as energy import costs surged due to the U.S.-Iran war. Markets are betting on a rate hike by the BOJ, especially after U.S. Treasury Secretary Scott Bessent called for fiscal discipline and higher interest rates.

Prime Minister Sanae Takaichi's plans to increase government spending and cut taxes have added to Japan's fiscal risks. The country's yield spike is part of a broader trend across developed markets, as high inflation and large government spending push up yields in the U.S. and Europe.