Japan's Bond Market in Crisis as Yields Surge to Three-Decade High

Japan's bond market is facing a crisis as yields surge to a three-decade high of 2.945%, putting Prime Minister Sanae Takaichi's spending plans at risk.

The benchmark 10-year yield has been driven up by concerns over Japan's towering debt pile and inflation risks stemming from the Middle East war.

Analysts say the tools available to calm markets, sporadic cuts to bond issuance or emergency central bank buying, amount to little more than temporary patches for a bond market being squeezed by stubborn inflation and an increasingly loose fiscal stance.

The Bank of Japan has warned of the risk of an inflation overshoot that could warrant an early rate hike, reducing concerns that it is falling behind the inflation curve but also fuelling a repricing across bond markets.