Japan’s 10-year government bond yield climbed to 2.78% on Tuesday, with the 20-year at 3.67% and the 30-year at 3.980%, as investors sold longer-dated debt.
Uncertainty over how Prime Minister Sanae Takaichi’s proposed food tax cuts would be financed drove the move after lawmakers ended the latest parliament session without agreeing on spending cuts, new revenue or more borrowing.
Shorter maturities moved the other way—the two-year yield slipped to 1.49% and the five-year to 2.005%—signaling a steeper curve and a higher term premium rather than a simple repricing of BOJ policy.
Friday’s Bank of Japan meeting is still in focus, with markets expecting rates to stay at 1% after June’s move, but the latest selloff suggests fiscal politics and possible bond supply are now pushing long-end borrowing costs higher.
Can Japan successfully absorb massive AI and semiconductor investments while facing a severely shrinking and ageing workforce?
Will Takaichi’s ¥370tn gamble trigger a catastrophic debt crisis, or finally shatter Japan's decades-long economic stagnation?
Is this historic industrial spending plan a genuine economic strategy, or a disguised geopolitical weapon against Chinese dominance?
From Yen Meltdown to Fiscal Reckoning: Tracking Japan’s High-Stakes ¥370 Trillion Growth Strategy
Overview
In July 2026, Japan faced a historic market shock as the yen collapsed past 163 against the dollar, driven by a widening interest rate gap between the U.S. and Japan. The Federal Reserve kept rates high while the Bank of Japan tightened only gradually, fueling capital outflows and speculative trades. At the same time, Middle East conflicts pushed oil prices higher, worsening Japan’s trade deficit and causing persistent inflation. Rising import costs eroded real wages and household purchasing power. As government debt-servicing costs soared, concerns grew that essential social programs could be crowded out, especially as Prime Minister Takaichi’s expansionary policies triggered market anxiety and forced a more cautious approach to tax cuts.