By Kosaku Narioka
Superlong Japanese government bond yields climbed further on Tuesday as market bets on an interest-rate increase intensified, stoking concerns that it could damp appetite for U.S. and other government debt by Japanese investors.
The 30-year Japanese bond yield rose 2 basis points to 3.410% during the session, representing a record high for the note. The 20-year yield also rose 1.5 basis points earlier to 2.905%, its highest level since June 1999.
Japan has become a focal point of global markets because its central bank has been raising interest rates at a time when peers in other countries, including the Federal Reserve, have been cutting. Inflation has been persistently high in Japan in the aftermath of the Covid-19 pandemic, reversing decades of benign price pressures in the world's third-largest economy.
This shift, coupled with fresh political gyrations in Japan, has made fixed-income investors jumpy. On Monday, Bank of Japan Gov. Kazuo Ueda said the central bank would thoroughly discuss the possibility of a rate increase at its coming meeting on Dec. 18-19.
Inflation data for Tokyo, considered a leading indicator of nationwide trends, showed that consumer prices, excluding fresh food, climbed 2.8% in November from a year earlier. Inflation in Japan has been consistently above the central bank's 2% target.
Ueda's comments caught some in the market off guard. Many investors had expected the central bank to remain on hold in December, a view that appeared to be grounded in the new Japanese prime minister's inclination for looser fiscal and monetary policies, and uncertainty over the impact of U.S. tariffs on the economy.
Yields on government debt, which rise when the prices of those bonds fall, rose worldwide on Monday as investors scrambled to price in a greater likelihood of a near-term rate increase in Japan. The yield on the 10-year U.S. Treasury note was at 4.095% by the end of Monday's session. In the middle of last week, the 10-year U.S. yield was just below 4%.
"The market is pricing 22 basis points of tightening for the December meeting, compared with 15 basis points at the end of last week," said Stuart Ritson, senior interest rate strategist at BNZ.
For decades, investors globally have taken advantage of low-cost loans in yen to buy higher-yielding assets like U.S. Treasurys--a practice known as carry trade--or to make leveraged bets on stocks and bitcoin.
Some in the market also worry that big Japanese life insurers and pension funds will decide that yields are sufficiently attractive at home, damping their appetite for bonds issued in the U.S. and Europe.
Fears that yen carry trades will unwind as the BOJ lifts rates has hit risk assets like bitcoin, which suffered a sharp drop on Monday. If Japan's economy continues to grow at a steady pace, that will likely firm up bets that the BOJ will keep raising its policy rate.
"With the BOJ pressing ahead with its tightening cycle, we expect the 10-year JGB yield to climb from 1.88% now to 2.5% over the next couple of years," economists at Capital Economics said in a note.
That said, higher JGB yields don't necessarily mean capital repatriation that would put global markets at risk, said Thomas Mathews, head of APAC markets at CE. The prospect of the BOJ resuming hiking a bit sooner than previously thought has certainly rattled bond and equity markets, "but we suspect they could nonetheless weather further tightening."
Write to Kosaku Narioka at kosaku.narioka@wsj.com
(END) Dow Jones Newswires
December 02, 2025 00:19 ET (05:19 GMT)
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