BOJ sees limits tested as long-term government bonds hit multi-decade highs

Yields on Japan’s long-term bonds just ripped through levels not seen in decades as markets pushed back hard against the Bank of Japan’s slow exit from ultra-loose ￰0￱ of Wednesday, the 30-year bond yield reached 3.286%, its highest point in over twenty ￰1￱ 20-year yield hit 2.695%, a level last seen in ￰2￱ 10-year benchmark bond is sitting at 1.633%, marking its highest level since 2008, while the 40-year yield rose to 3.506%, almost 90 basis points up since January. What’s driving this brutal surge? The Bank of Japan is trying to cool things ￰3￱ three years of consumer prices staying above the 2% inflation target have made that job nearly ￰4￱ central bank has started to raise short-term policy rates and cut back its bond-buying, but it’s not working fast ￰5￱ real policy rate in Japan is still buried at -2.6%, meaning inflation-adjusted interest rates remain far below ￰6￱ investors unload bonds while BOJ tries to maintain stability Foreign demand for Japanese bonds is falling ￰7￱ Securities Dealers Association data showed that total foreign bond purchases dropped 6% in July, down to 7.66 trillion yen compared to ￰8￱ overseas investors are backing away from bonds and pouring into Japanese equities instead, chasing big gains in the stock ￰9￱ appeal of long-term bonds is weakening fast, especially when inflation is still hanging around and the BOJ hasn’t made its next big move ￰10￱ the same time, domestic politics is adding more ￰11￱ Minister Shigeru Ishiba’s coalition got slapped in the July upper-house elections, as opposition parties calling for consumption tax cuts made gains.

Ishiba, speaking Tuesday, told reporters he has “no intention at all of clinging” to his ￰12￱ he steps down, Japan could face multi-party gridlock and more pressure to boost spending, which will keep bond yields ￰13￱ analysts say the 30-year bond market is already pricing in tax cuts worth 1-2 percentage points, and warned that if deeper cuts are pushed through, the pressure on yields could grow ￰14￱ starts flowing back home but full repatriation not expected Some domestic investors are ￰15￱ Roberts, head of fixed income at Nedgroup Investments, said his firm has already pulled money from the ￰16￱ the UK and bought Japanese bonds, for the first time in decades.

“This is the first time since I started managing funds in the 1990s I have bought Japanese bonds,” Roberts told ￰17￱ the enthusiasm is ￰18￱ Ren Goh, fixed income portfolio manager at Eastspring Investments, said most investors are still focusing on shorter-duration bonds, while staying cautious on long-term ones. “Investors will be in no major hurry to aggressively leg into duration even as valuations appear more compelling,” he said. Barclays’ Kadota pointed out that inflows back into Japan won’t be serious until the BOJ ends its rate-hiking ￰19￱ now, the central bank is still in tightening mode, so buyers are waiting it ￰20￱ still have plenty of yen parked at the BOJ that they could use to buy bonds before even thinking of dumping U.

S. assets. Meanwhile, Japan’s government is asking for more money. A lot ￰21￱ requests for the fiscal year starting April 2026 have hit a record ¥122.4 trillion ($822 billion).

That’s up from ¥117.6 trillion the previous ￰22￱ Defense Ministry alone wants ¥8.8 trillion, as the country tries to raise military spending to 2% of GDP by ￰23￱ top of that, ¥32.4 trillion is now needed just to finance existing debt, the highest ever recorded. That’s what rising yields do, they make it way more expensive to keep the system ￰24￱ usual, the Finance Ministry will trim the numbers before finalizing the ￰25￱ year, they cut the initial ¥117.6 trillion request down to ¥115.2 ￰26￱ with interest payments climbing, political noise increasing, and investors ditching long-dated bonds, the pressure is already baked into the ￰27￱ Bybit now and claim a $50 bonus in minutes