Why Japan's JGB Yields Are Rising to 1999 Levels
Based on the latest information, here's the comprehensive context behind the surge in Japanese Government Bond yields:
Primary Drivers:
1. Historic Monetary Policy Shift by the Bank of Japan
End of Ultra-Easy Policy: After decades of ultra-loose monetary policy, the BoJ is normalizing rates
Yield Curve Control Dismantled: In March 2024, the BoJ ended its negative interest rate policy and removed the 1.00% cap on 10-year JGB yields
Rate Hikes:
January 2025: Raised to 0.50%
December 2025: Raised to 0.75% (highest since September 1995)
Markets expect rates to reach near 1% by end of 2025/early 2026
2. Persistent Inflation Above Target
Current Rate: 2.9% annual inflation (November 2025)
Core Inflation: 3.0% - 44 consecutive months above the BoJ’s 2% target
This sustained inflation is the key justification for continued rate hikes
3. Wage-Price Spiral Taking Hold
Significant wage increases through “Shunto” negotiations in 2022-2023
Companies delivering steady wage increases into 2026
Creating a “virtuous cycle” between wages and prices that supports sustained inflation
4. Improved Economic Outlook
Output gap improving (economy operating closer to potential)
Corporate profits supporting wage growth
Positive economic conditions justify policy normalization
Market Impact:
10-year JGB yield: Rose to 2.024% (highest since 1999)
30-year JGB yield: Surged 100 basis points to 3.2% in May 2025
Significant volatility in Japan’s $7.8 trillion government debt market
Yield gap with other global bonds narrowing
Looking Ahead:
The BoJ has signaled it will continue raising rates if economic conditions remain favorable, though real interest rates remain “significantly negative.” The next policy meetings are scheduled throughout 2025, with markets closely watching for further hikes.
This represents a historic turning point for Japan, ending decades of deflation-fighting policies and returning to a more normalized monetary environment.
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