Japan’s 10-year yield hits three-decade peak on inflation worries

TOKYO, Aug 18 : Japan’s benchmark 10-year government bond yield climbed to a three-decade high on Tuesday as a stalemate in the Middle East conflict stoked inflation worries and reinforced speculation about a near-term Bank of Japan interest-rate increase.

The 10-year JGB yield added 1.5 basis points (bps) to 2.935 per cent as of 0415 GMT, after earlier touching 2.945 per cent for the first time since September 1996. Yields rise when bond prices fall.

The yield retreated from the day’s high following a solid auction of 5-year JGBs, which saw the highest level of demand since June 2025 as the higher yield on offer attracted buyers.

Following the auction result, the 5-year yield reversed an early rise to decline 1 bp to 2.15 per cent. It had started the day by rising 2 bps to a record 2.18 per cent.

Other cash bond tenors had not traded since the auction result.

The 20-year and 30-year JGB yields had risen 2.5 bps to 2.935 per cent and 4 bps to 4.115 per cent, respectively, in the Tokyo morning.

Longer-dated bond yields tend to be more responsive to inflationary concerns.

The 2-year JGB yield, which is most sensitive to monetary policy expectations, had risen 1 bp to 1.7 per cent, the highest since May 1995.

Comments from BOJ officials have turned increasingly hawkish in recent days, and Reuters and other media reported that the policy board may pursue more aggressive tightening than it has to this point.

DBS analysts raised forecasts for the 10-year JGB yield to reach 2.85 per cent by year-end, and now expect the BOJ to raise the key rate in September while accelerating the pace of tightening to one quarter-point move every three to four months, from about twice a year currently.

“The government also appears less opposed to an early hike, further increasing the likelihood of a September move,” they said in a note.