Japan’s 10-year government bond yield climbed above 3% on Wednesday, its highest level since 1996, as surging oil prices stoked inflation fears and reinforced expectations of imminent interest rate hikes. The move was further driven by concern over Japan’s deteriorating fiscal outlook, with the Takaichi administration planning large-scale spending and tax cuts, adding pressure on domestic bond markets.
Oil prices rose for a third straight session amid escalating tensions between the US and Iran, intensifying worries about potential disruptions to Middle Eastern energy supplies. For Japan, which relies heavily on oil imports, higher energy costs amplify import-driven inflation.
At the same time, markets increasingly expect the Bank of Japan to raise interest rates this month. US Treasury Secretary Scott Bessent has publicly urged BOJ Governor Kazuo Ueda to take “decisive” monetary action to address the yen’s weakness.
