Japan’s bonds fall as speculation mounts over Bank of Japan rate hike

Japan’s government bond market is flashing a warning sign that hasn’t appeared in nearly three decades. The benchmark 10-year Japanese Government Bond yield has climbed to approximately 2.90–2.93%, a level last seen in September 1996. Since the start of 2026, yields have risen more than 70 basis points, and the selling pressure shows little sign of letting up. For context: when bond yields rise, bond prices fall. The market is essentially demanding more compensation to hold Japanese government debt, which reflects growing doubt about the fiscal outlook and a dawning acceptance that cheap money in Japan is, finally, becoming a relic. What’s driving the selloff Two forces are working in tandem here. The first is the Bank of Japan’s ongoing pivot away from the ultra-loose monetary policy it held for decades. In June, the BOJ raised its policy rate from 0.75% to 1.0%, the highest the rate has been in thirty years. Markets are now pricing in another hike, potentially as soon as September. The second force is inflation, which is no longer the polite, theoretical kind Japan’s central bankers hoped for when they spent years trying to conjure it. Producer price inflation came in at 7.2% in ...