Following the BOJ’s rate hike in September, this article examines and explains movements in retail government bond yields and the interest rates set for the October offering from both short- and long-term perspectives. It also discusses the factors driving rate movements and the relationship between the various products.
Following the BOJ’s decision to raise its policy rate to 1.25% on 18 September 2026, yields on short-term 3-year and 5-year government bonds rose, while the yield on the long-term 10-year bond fell slightly. The move attracted attention because, although the BOJ’s rate hike had been priced into the market, long-term rates are also influenced by inflation expectations and fiscal factors.
Based on estimates as of 18 September, rates for the October offering were expected to rise for all four products: the fixed-rate 3-year, fixed-rate 5-year, new over-the-counter 10-year and floating-rate 10-year. In fact, rates for all products were set higher, at 2.07% for the fixed-rate 3-year, 2.39% for the fixed-rate 5-year, 2.05% for the floating-rate 10-year and 3.048% for the new over-the-counter 10-year JGB.
Factors cited as contributing to the move include inflation concerns stemming from higher crude oil prices, fiscal uncertainty and the impact of the BOJ’s pace of rate hikes. Government bond yields rose during September under the influence of higher crude oil prices and fiscal concerns. The 10-year yield reached the 3% range, and the spread against the 2-year yield also moved.
Because rate movements vary depending on the offering start date and market expectations, the practical conclusion is to select government bonds in line with the investment horizon, taking into account combinations of the 3-year and 5-year bonds, whose maturities are relatively near, and the long-term 10-year bond.