Japan’s 10-Year Bond Yield Reaches Decade High Amid US Yield Surge

Japan’s 10-year government bond yield surged to its highest level in a decade, driven by the recent rise in U.S. yields, which reached their highest point in 16 years. This development comes against the backdrop of ongoing concerns about the demand for Japanese bonds, with the finance ministry’s recent auctions experiencing weak investor interest.

The 10-year Japanese Government Bond (JGB) yield increased by 1.5 basis points to reach 0.75%, after hovering around the 0.745% level for about a week. This upward movement in yields reflects the broader trend of rising global bond yields, with U.S. Treasury yields leading the way.

Notably, the Bank of Japan (BOJ) has introduced policies that effectively act as a cap on the 10-year yield, a measure it implemented following a surprising policy adjustment in late July. Despite this, the increase in the yield has been gradual, marked by occasional pullbacks and plateaus.

One factor contributing to the relatively steady rise in yields is the BOJ’s substantial bond purchases, which have limited the supply of available JGBs in the market. Masayuki Kichikawa, Chief Macro Strategist at Sumitomo Mitsui DS Asset Management, explained this dynamic, stating, “The BOJ is purchasing heavily, so investors don’t have any JGBs left to sell.” Kichikawa also noted that there is still room for Japanese yields to rise within the current monetary policy framework, but adjustments to the size and frequency of the BOJ’s purchases may be necessary to facilitate further increases.

Since the BOJ’s policy shift on July 27, the 10-year JGB yield has risen by 31 basis points, demonstrating the impact of the central bank’s policies on the market. In contrast, U.S. Treasury yields have surged by 55 basis points in the current month alone, reaching levels last seen in October 2007 at 4.642%.

Meanwhile, the two-year JGB yield edged up by 1 basis point to 0.035%, reflecting the broader trend in rising yields. In the superlong maturity sector, the 20-year and 30-year JGB yields each increased by 1.5 basis points, reaching 1.475% and 1.725%, respectively.

As of 0209 GMT, the five-year JGB yield had not yet traded, indicating continued market uncertainty and potential volatility in the coming hours. The performance of Japanese government bonds in the face of rising global yields remains a topic of keen interest for investors and policymakers alike, given its implications for the broader Japanese economy and monetary policy.