Japan's 10-year government bond yield has broken through 3%, and the largest overseas buyers of Japanese bonds may reduce their allocations.

Japan’s 10-year government bond (JGB) yield has breached 3% for the first time since 1996, while the U.S. 10-year Treasury yield briefly climbed to 4.79% and Germany’s 10-year Bund yield hit its highest level since 2011. Global bond markets have witnessed synchronized sell-offs, driven primarily by inflation, interest rate hike expectations, and fiscal financing pressures. Market participants are closely monitoring how shifts in Japan’s bond market will impact global capital flows. As domestic Japanese bond yields rise, domestic assets have grown more attractive to Japanese investors, potentially leading to reduced new allocations to overseas bonds in regions including the U.S., Europe, and Australia. Analysts note that even without large-scale capital repatriation, Japan’s exit as a marginal buyer of overseas bonds could lift global bond term premiums and long-term yields. Meanwhile, escalating Middle East tensions have pushed up oil prices, the U.S. national debt has surpassed $40 trillion, Japan has expanded its fiscal spending plans, and tech giants are issuing long-term bonds to fund AI infrastructure—all of which have further increased global bond supply and capital demand. The market is shifting its focus from concerns over economic growth alone to greater attention on inflation and bond supply pressures.