Long-term interest rates have reached the 3% threshold for the first time in about 30 years and continue to rise amid higher prices and Bank of Japan rate hikes. Concerns over deteriorating public finances have also become a focus for the market.
Long-term interest rates are guided by the yield on newly issued 10-year government bonds. They had declined in recent years amid deflation and large-scale monetary easing, but have now recovered to around 3%. Financial markets view this movement as an “economic thermometer,” underscoring once again the tendency of long-term interest rates to rise and fall in response to forecasts for economic activity and prices.
Long-term interest rates, which were in the 7%-8% range in the early 1990s, settled at low levels after the prolonged stagnation and deflation that followed the collapse of the bubble economy. Following the Bank of Japan’s 2013 “quantitative and qualitative easing,” its large-scale government bond purchases accelerated the decline.
After the COVID-19 pandemic, the global recovery in demand and surging energy prices became factors driving long-term interest rates higher. The Bank of Japan’s end to large-scale easing and its hikes in short-term interest rates in 2024 have also supported the rise in long-term interest rates.
Under the expansionary fiscal policies of the Takaichi administration in 2025, increased government bond issuance is expected, heightening market vigilance amid concerns over the difficulty of repaying the debt in the future.
Overseas, some believe that large-scale tax cuts without secured funding could trigger a collapse in government bond prices, and this view is also affecting domestic market trends.