Japan’s bond market yield hits 3% for first time this century

Japan’s 10-year government bond yield climbed to 3% on September 1, a threshold the country hasn’t touched since 1996. The milestone caps a dramatic repricing that has added more than 1.4 percentage points to the benchmark yield since August 2025. In a country where negative interest rates were the norm just two and a half years ago, that kind of move isn’t just notable. It’s seismic. What’s driving the sell-off Three forces are converging on Japan’s bond market simultaneously. First, inflation expectations have been climbing alongside oil prices, which have pushed above $85 per barrel amid ongoing geopolitical tensions. Japan imports nearly all of its energy, making it especially vulnerable to commodity-driven price pressures. Second, the Bank of Japan has been actively normalizing monetary policy. The BOJ hiked its policy rate to 1% in June 2026, the highest level since 1995. It has also been reducing its purchases of Japanese government bonds, removing the backstop that kept yields artificially compressed for more than a decade. Third, fiscal policy is heading in the opposite direction of restraint. Japan’s ministries submitted record budget requests of approximately 143 trillio...