With the Bank of Japan expected to accelerate the pace of rate hikes, long-term interest rates could rise into the 4–5% range by 2035. The Takaichi administration's fiscal discipline and growth strategy are cited as underlying factors.
The upward trend in long-term interest rates has strengthened, and Japan's 10-year government bond yield briefly entered the 3% range in September 2026. This has led to growing market expectations that interest rates still have further room to rise.
While instability in the Middle East and the global inflationary pressure caused by higher crude oil prices are keeping long-term interest rates in the US and Europe elevated, the fiscal policies of the Takaichi Sanae (高市早苗) administration are viewed in Japan as a factor pushing up interest rate forecasts.
The rise in long-term interest rates since the administration took office reflects growing uncertainty over short-term interest rates and inflation expectations, as well as an expanding term premium amid concerns over fiscal discipline. There are also expectations that overseas investors' share of government bond holdings will increase as the Bank of Japan decides on additional rate hikes and reduces its government bond purchases. Looking ahead over the next 10 years or so, long-term interest rates could rise into the 4–5% range.
If the effective interest rate on government debt exceeds the economic growth rate, the government debt-to-GDP ratio could rise again, creating a risk that fiscal sustainability will deteriorate.