Japan 40-year govt bond yield rises 5.5bps to 3.625%

Japan 40-year govt bond yield rises 5.5bps to 3.625%

Japan’s 40-Year Government Bond Yield Rises to 3.625% Amid Fiscal and Monetary Shifts

On March 4, 2026, Japan’s 40-year government bond yield rose 5.5 basis points to 3.625%, reflecting growing market concerns over fiscal sustainability and evolving monetary policy dynamics. The increase follows heightened expectations that the Takaichi administration’s upcoming economic stimulus package could be significantly larger than previously projected, potentially necessitating additional government bond issuance according to market analysis.

The Bank of Japan’s (BOJ) policy adjustments have also contributed to upward pressure on yields. The central bank abolished its yield curve control (YCC) framework in March 2024 and initiated quantitative tightening (QT) in August 2024, reducing its holdings of Japanese Government Bonds (JGBs). While domestic banks and foreign investors have since become primary buyers of JGBs, domestic purchases declined sharply in Q2 2025, increasing reliance on foreign investors, who are more sensitive to fiscal risks as research shows.

Market participants are closely monitoring the BOJ’s balance sheet and its capacity to manage rising yields. Should long-term rates continue to climb, the BOJ may reconsider its QT timeline or resume large-scale JGB purchases. However, fiscal concerns linked to expansive stimulus plans remain a key driver of caution among foreign investors, exacerbating upward pressure on yields according to Invesco analysis.

The yen’s recent weakness, trading near ¥155 per dollar, has further underscored market uncertainty. The depreciation reflects expectations of the BOJ’s cautious approach to tightening and worries over fiscal deterioration. While the government has signaled potential foreign exchange intervention if the yen approaches ¥160, clarity on the stimulus package’s size could stabilize the currency as market data indicates.

Analysts note that Japan’s resilient domestic demand and reflationary expectations may support a BOJ rate hike in the coming months. However, the interplay of fiscal expansion, QT, and foreign investor sentiment will remain critical in shaping bond market outcomes.

According to Invesco analysis: Why Japanese bond yields are rising and the yen is falling, Invesco (November 24, 2025).