Japan's 30-Year Bond Yield Hits Record High Amid AI Debt Surge

Japan's 30-year government bond yield surged to a record 4.235% on October 5, marking the highest level since the bond's debut in 1999. This spike came as investors awaited remarks from Prime Minister Sanae Takaichi and followed a year in which the yield first breached 4% in May, rising roughly 23 basis points since then.

Bank of Japan deputy governor Shinichi Uchida attributed the rise to heavy bond issuance by AI-related companies, which he described as 'a big positive demand shock' for the global economy. Uchida warned that the rapid debt accumulation by AI firms could lead to a correction if expected profits fail to materialize. He highlighted Broadcom's plans to raise over $60 billion, potentially up to $100 billion, to fund AI infrastructure, with yields on Broadcom's 2031 bonds rising about 14 basis points in August alone.

Japan's domestic bond market is also feeling the pressure. The country's super-long bond yields have climbed amid concerns over Prime Minister Takaichi's spending plans, which are expected to widen the fiscal deficit. The finance ministry's decision to boost government bond issuance by about $75 billion to fund a stimulus package has further increased supply in an already tight market.

The combined effects of fiscal expansion at home and global AI debt are prompting Japanese investors to reconsider their holdings abroad. Data shows Japan's Treasury holdings have declined, with Japanese investors selling a net ¥4.12 trillion of foreign bonds in March. Analysts suggest this shift could push US 10-year Treasury yields higher, impacting the cost of AI-related borrowing worldwide.