Japan's 30-year yield hits fresh record high since 1999 debut

Japan's 30-year yield hits fresh record high since 1999 debut

On July 2, 2025, Japan's 30-year yield reached a fresh record high since the bond's debut in 1999. The yield skyrocketed by 100 basis points (bps) from its 7 April 2025 intraday low to hit a fresh all-time intraday high of 3.2% on 21 May 2025 [1].

The rapid surge in the 30-year yield has doubled the level of the more commonly cited 10-year JGB yield, which has also ascended rapidly after being near zero just four years ago. The 10-year yield advanced by 53 bps from its 7 April 2025 low of 1.06% to print an intraday high of 1.59% on 22 May 2025, close to a 17-year high [1].

The key drivers behind this spike in the 30-year JGB yield include a shift in the Bank of Japan's (BoJ) monetary policy. In March 2024, the BoJ ended its ultra-easy monetary policy, including negative rates and the yield curve control (YCC) program, and hiked its short-term policy interest rate for the first time in 17 years. Additionally, the BoJ has embarked on a quantitative tightening (QT) plan since July 2024, where it aims to reduce its bond purchases [1].

The lack of demand from Japan's life insurers, who hold approximately 13% of the total outstanding JGBs, has also contributed to the upward pressure on yields. Japanese life insurers had trimmed their JGB holdings by 1.35 trillion yen in the three months through March 2025, the third-largest reduction on record and the steepest reduction since 2017 [1].

The spike in the 30-year JGB yield has reinforced a push-up in long-term global sovereign bond yields. The 30-year US Treasury bond yield rose by 81 bps to print an intraday high of 5.15% in May, and the 30-year German bond yield rallied by 36 bps to print an intraday high of 3.20% over the same period [1].

Moreover, the rising longer-term JGB yields may narrow the yield spread discount against the rest of the world's sovereign bonds, amplified by an unwinding of carry trade trading and investment strategies deployed by Japanese investors. The 30-year JGB yield continues to rise rapidly, leading to a significant capital allocation adjustment where Japanese investors may pull money out of US Treasuries and invest in JGBs due to higher attractive yields [1].

The recent 100 bps spike in the 30-year JGB yield from April to May has led to another round of narrowing of the 30-year US Treasury-JGB yield spread, albeit at a slower pace of 36 bps from April versus the prior steeper 60 bps contraction seen from April 2024 to July 2024 [1].

Investors should keep a close eye on Japan's inflation trend, which has surged past the BoJ's 2% target set by the BoJ. The core-core CPI (excluding fresh food and energy) has increased to 3.3% y/y in May 2025, holding steady above BoJ's long-term inflation target of 2% for the past seven months, and its highest level since January 2024 [1].

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