Japan's 10-Year Yield Surges to Three-Decade High on Inflation Worries

Japan's benchmark 10-year government bond yield surged to a three-decade high on Tuesday, driven by inflation worries and speculation about a near-term interest-rate increase from the Bank of Japan. The 10-year JGB yield climbed 1.5 basis points to 2.935%, its highest level since September 1996.

The yield retreated slightly after a solid auction of 5-year JGBs, which saw the highest demand since June 2025 as buyers were attracted by the higher yield on offer. The 5-year yield had started the day at a record 2.18%, but declined 1 bp to 2.15% following the auction result.

Longer-dated bond yields tend to be more responsive to inflationary concerns, and the 20-year and 30-year JGB yields rose 2.5 bps to 2.935% and 4 bps to 4.115%, respectively. The 2-year JGB yield, which is most sensitive to monetary policy expectations, increased 1 bp to 1.7%, its highest level since May 1995.

DBS analysts raised their forecasts for the 10-year JGB yield to 2.85% by year-end and expect the BOJ to raise the key rate in September while accelerating the pace of tightening to one quarter-point move every three to four months.