On December 3, 2025, Japanese Government Bonds (JGBs) are under significant selling pressure, driving yields to multi-year or record highs amid heightened expectations for a Bank of Japan (BOJ) rate hike at its December 18-19 meeting. This follows hawkish comments from BOJ Governor Kazuo Ueda on December 1, signaling the central bank will weigh "pros and cons" of raising the policy rate from 0.5% to 0.75%. The move is exacerbating concerns over Japan's massive public debt (over 250% of GDP) and aggressive fiscal stimulus under Prime Minister Sanae Takaichi's administration, which could fuel inflation and force further tightening. Despite BOJ interventions (including ¥1.1 trillion in purchases today), banks are offloading holdings, adding to supply and pushing yields higher. This has strengthened the yen, pressured equities (Nikkei down 3.2% in recent sessions), and raised global ripple risks, as Japan's low-yield bonds have long been a source of cheap capital for overseas investments like U.S. Treasuries.
Maturity | Yield (%) | Change (bps) | Notes |
|---|---|---|---|
2-Year | 1.015 | +1 | Near 17-year high; most sensitive to policy rate. |
5-Year | 1.385 | +2 | Highest since June 2008. |
10-Year | 1.89–1.90 | +3–3.5 | Highest since June 2008; benchmark borrowing cost. |
20-Year | 2.910 | +3.5 | Multi-year peak. |
30-Year | 3.43 | +5 | Record high (intraday hit 3.41% earlier). |
40-Year | 3.740 | +5.5 | Surged on long-end sell-off. |
- BOJ Hawkishness and Rate Path Uncertainty: Markets now price an ~80% chance of a December hike, with January odds at 90%. Ueda's remarks triggered the heaviest JGB sell-off since July, as investors fret over hikes beyond December amid sticky inflation (core CPI at 2.8% in October).
- Fiscal Stimulus Concerns: Takaichi's plans for ¥20+ trillion in spending (via bonds) are seen as inflationary, clashing with debt sustainability. This has soured sentiment ahead of tomorrow's 30-year auction.
- Institutional Selling: Banks, insurers, and the BOJ itself dumped a record ¥10.7 trillion in JGBs in September; today, banks sought to offload ~¥2 trillion, but BOJ bought only ¥1.1 trillion—leaving excess supply for open-market sales. Major holders (BOJ ~50%, banks/insurers ~40%) prioritize liquidity over yield-chasing.
- Global Spillover: The yen carry trade unwind (borrowing cheap yen to fund higher-yield assets abroad) is accelerating, with USD/JPY nearing 150. Falling U.S.-Japan yield spreads (e.g., 30-year at March 2022 lows) could repatriate Japanese capital, pressuring U.S./global assets.
- Positive Note: A recent 10-year auction saw strong demand (bid-to-cover ratio 3.59, above average), steadying the yen and Nikkei somewhat today.
- Bearish Vibes on X: Traders warn of "bond market rout" and "global liquidity crunch," with calls for 10-year yields >2% by Christmas. Some speculate Saudi or foreign bailouts, but focus remains on BOJ's balancing act between yen stability and growth.
- Forecast: Trading Economics sees 10-year at 1.79% by Q4 end, but upside risks loom if household spending data (due Friday) supports hikes. Watch for BOJ tapering yield curve control further—yields could test 2008 peaks if unchecked.
