Japan’s Bond Yields Surge as BoJ Rate Hike Speculation Intensifies

Japan’s government bond market witnessed a historic surge on December 1, with the 2-year yield breaking above 1% for the first time since 2008. The 5-year yield ROSE to 1.345%, a level unseen since June 2008, while the 30-year yield briefly touched a record high of 3.395%. This dramatic shift signals mounting expectations that the Bank of Japan may soon end its decades-long ultra-accommodative monetary policy.

The benchmark 10-year yield climbed to its highest level since July 2006, reflecting growing conviction in a BoJ rate hike. Governor Kazuo Ueda’s recent remarks about "carefully weighing the merits and demerits" of tightening were interpreted as the clearest signal yet of an impending move. Over the past month, the 10-year yield has surged 22 basis points, with a year-to-date increase of 80 basis points.

While still far from the 1984 peak, the velocity of the repricing underscores how quickly markets are adapting to Japan’s potential exit from negative rates. The move could Ripple through global markets, particularly affecting carry trades and liquidity conditions that have long relied on cheap yen funding.