Japan’s government bond yields rose into the 3% range for the first time in 30 years, reaching 3.005% in a single day. The yen has also weakened, putting the government’s fiscal management and the outlook for interest rates in the market spotlight.
The yield on Japan’s 10-year government bonds briefly rose to 3.005%, marking the first time since 1996 that it has reached the 3% range. The yen has fallen to around ¥160 per U.S. dollar, and the combination of rising interest rates and a weaker yen in the government bond market is being viewed as a new phase.
It is being pointed out that Prime Minister Takaichi Sanae (高市早苗) may find it difficult to maintain the first arrow of monetary easing under her Takaichi-nomics policy. In light of the difficulty of maintaining a low-interest-rate environment, views are emerging that raising interest rates will be an important option for curbing excessive yen depreciation and rising prices.
The challenge of securing funding has also come to light. The Takaichi administration has presented a plan to change the consumption tax on food products from 8% to 1% for fiscal 2027, with the annual decline in tax revenue expected to be approximately ¥5 trillion. Against this backdrop, the fiscal 2027 budget proposal is expected to exceed ¥143 trillion, setting a new record. Principal and interest redemption costs on government bonds are expected to reach ¥31.3 trillion, with interest expenses projected at approximately ¥13 trillion.
In response to developments in the financial markets, the Bank of Japan is scheduled to decide on the 18th whether to raise interest rates further. The dilemma between future monetary policy and fiscal management is becoming the market’s focus.