Japan's 10-Year Bond Yield Hits 2008 High Amid Rate Hike Speculation

Japan’s benchmark 10-year government bond yield surged to 1.575% on Monday, marking its highest level since 2008. This uptick occurred as U.S. Treasury yields fell, highlighting the growing expectations that the Bank of Japan (BOJ) will continue raising interest rates. The yield’s increase followed the release of data showing the fastest rise in base pay in over three decades, reinforcing the outlook for gradual rate hikes by the BOJ.

The rise in bond yields was further fueled by a weak demand at an auction of five-year debt, where some investors held back on purchases, anticipating that rates will continue to climb.

This movement in Japan stands in stark contrast to the situation in the United States, where Treasury yields rallied due to uncertainties surrounding President Donald Trump’s economic policies.

While BOJ officials are reportedly leaning toward keeping interest rates unchanged at their next meeting in May, market expectations are growing. Overnight index swaps indicate an 85% likelihood of a rate hike by July, with a near-certainty by September.

In light of these developments, JPMorgan Chase & Co. recently raised its year-end forecast for the 10-year Japanese government bond (JGB) yield to 1.7% from 1.55%. Some analysts predict the rate could rise to 2%, which would position China’s sovereign debt as the lowest-yielding among major markets.

Takashi Fujiwara, head of fixed income at Resona Asset Management, noted that the market anticipates the BOJ may raise rates sooner than expected. “People are starting to think that the policy decision in May will not be smooth-sailing,” he said, reflecting growing market tensions surrounding Japan’s monetary policy.