Japan’s 10-year government bond yield climbed to around 2.89% on Monday, as markets continued to price in a Bank of Japan rate hike in September. Expectations of an earlier policy move have pushed Japanese yields higher, with futures now implying roughly an 82% probability of a September increase, up sharply from about 23% before the BOJ’s July meeting.
Investors are closely watching a speech by Deputy Governor Ryozo Himino on Thursday for further clues about the timing and pace of monetary tightening. Persistent inflationary pressures have strengthened expectations for policy normalization, while growing concerns over Japan’s fiscal outlook are adding further upward pressure on long-term yields.
In a sign of how higher borrowing costs are feeding through to public finances, the Finance Ministry is considering raising the assumed interest rate used to calculate debt-servicing costs to 3.8% for fiscal 2027, from 3% in the current budget.