Japan's 10-year government bond yield rises to 2.1%... reaching the highest level in 28 years

The Japanese government has decided to raise the 10-year government bond coupon rate to an annual rate of 2.1%. This is the highest level in 28 years since 1998, reflecting the recent upward trend in bond market interest rates.

In the upcoming government bond issuance, Japan’s Ministry of Finance will increase the coupon rate of the 10-year government bond from the original 1.7% to 2.1%, a rise of 0.4 percentage points. The coupon rate is set at the time of the bond’s initial issuance, serving as the benchmark for interest income investors receive over a certain period, and is a key indicator of the bond’s attractiveness.

This move is based on the recent upward trend in Japan’s government bond market. On January 6, the 10-year government bond yield in the Tokyo bond market temporarily rose to 2.130%, reaching the highest level in approximately 27 years since February 1999. Since yields and bond prices move inversely, an increase in yield indicates a decline in bond prices.

The rising trend in market interest rates is also closely related to changes in the Bank of Japan’s monetary policy stance. The Bank of Japan has hinted at a possible shift away from its long-standing ultra-low interest rate policy, with market expectations for an increase in the benchmark rate spreading. Additionally, expansionary fiscal policies led by Minister of Internal Affairs and Communications Sanae Takaichi, which are expected to expand government bond supply, have also exerted additional upward pressure on bond yields.

As Japan begins to normalize interest rates to escape long-term deflation, address inflation, and ensure fiscal stability, this increase in government bond yields is seen as part of that process. The Bank of Japan’s policy shift, given its long-standing negative interest rate policy and yield curve control, is also attracting increasing attention.

It is expected that this trend will have a significant impact on Japan’s future bond and foreign exchange markets. In particular, some believe that, alongside increased external capital inflows, the rising interest rates will also need to be closely monitored for their effects on private consumption and corporate borrowing, in conjunction with fiscal policy.