FX.co ★ Japan 10Y Yield Hovers Near 27-Year High

Japan's 10-year government bond yield recently hovered around 2%, marking its highest point in nearly 27 years. This surge reflects growing investor concerns over the nation's aggressive fiscal strategies. The anticipated FY2026 budget, expected to surpass ¥122 trillion, necessitates bond issuance exceeding last year’s ¥28.6 trillion. This is coupled with a ¥21.3 trillion stimulus package intended to alleviate household expenses, intensifying doubts about Japan's fiscal sustainability. Consequently, investors are demanding higher premiums to offset fiscal risks, driving yields up. In tandem, the Bank of Japan's recent interest rate hike to 0.75% suggests a measured approach to further tightening monetary policy. According to former BOJ board member Adachi, the central bank might eventually increase rates to 1.5%, with the next adjustment predicted for around July, potentially escalating the government's borrowing costs. Analysts caution that persistent yield hikes could significantly threaten the economy by 2026, challenging investor confidence and the resilience of Japan’s fiscal expansion.