10-year JGB yield in Japan jumps to 1.545%, marking highest point since May 23

10-year JGB yield in Japan jumps to 1.545%, marking highest point since May 23

The 10-year Japanese Government Bond (JGB) yield in Japan has surged to 1.545%, marking the highest point since May 23, 2025. This significant increase is a result of recent policy shifts and changes in market dynamics.

The Bank of Japan (BoJ) has been a dominant force in the JGB market, implementing its yield curve control (YCC) program since 2016 to keep the 10-year JGB yield near zero. However, in March 2024, the BoJ ended its ultra-easy monetary policy, including negative interest rates and the YCC program, and initiated a gradual interest rate hike. This shift has allowed JGB yields to move more freely, reflecting market participants' expectations and fundamentals.

The 30-year JGB yield has also experienced a rapid surge, rising by 100 basis points (bps) from its 7 April 2025 low to hit a fresh all-time intraday high of 3.2% on 21 May 2025. This rapid movement has doubled the level of the 10-year JGB yield, which has ascended rapidly after being near zero just four years ago.

The spike in JGB yields is also influenced by the lack of demand from Japan's life insurers. Life insurers hold approximately 13% of the total outstanding JGBs, making them the second-largest investor group after the BoJ. Recent volatility and low liquidity have deterred life insurers from buying more JGBs, increasing upward pressure on yields.

The rising JGB yields have had a significant impact on global financial markets. The 30-year US Treasury bond yield rose by 81 bps to print an intraday high of 5.15% in May, while the 30-year German bond yield rallied by 36 bps to print an intraday high of 3.20% over the same period. These movements suggest a synchronized upward trend in long-term sovereign bond yields.

Moreover, the rise in JGB yields may lead to an unwinding of carry trade strategies deployed by Japanese investors. In the past decade, the Japanese yen has been used as a funding instrument due to ultra-low interest rates in Japan. However, as JGB yields rise, Japanese investors may pull money out of US Treasuries and invest in JGBs, affecting the movements in the FX market, particularly involving the Japanese yen currency pairs.

Investors and financial professionals should keep a close eye on Japan’s inflation trend, which has been a primary reason for the BoJ to end its ultra-easy monetary policy. Japan's core-core CPI (excluding fresh food and energy) has increased to 3.3% y/y in May 2025, holding steady above the BoJ’s long-term inflation target of 2% for the past seven months.

References:
[1] https://www.oanda.com/us-en/trade-tap-blog/analysis/fundamental/record-spike-japan-jgb-yield-causes-market-impact/