Japan’s 10-year government bond yield has hit 3% for the first time in 30 years, and a rate hike by the Bank of Japan this month is now nearing market consensus.

Japan’s benchmark 10-year government bond yield rose to 3% on September 1, its first such level since September 1996, hitting an intraday high of 3.005%. The 5-year yield touched a record high of 2.265%, while the 2-year yield climbed to a 31-year peak of 1.81%. The surge in yields is driven by three key pressures: the Middle East crisis lifting global inflation expectations, near-certain market bets that the Bank of Japan will raise interest rates this month, and growing concerns about fiscal expansion under Prime Minister Sanae Takaichi. The Japanese government had assumed a long-term interest rate of 3% in its fiscal 2026 budget to calculate debt servicing costs, and current yields have now officially breached this key threshold. Japan is not alone: amid ongoing U.S.-Iran tensions and high oil prices, global sovereign bond yields have hit multi-year highs, with yields on U.S., German, and French government bonds all rising to multi-year peaks recently. Japan’s debt burden exceeds 200% of its GDP, making it particularly vulnerable to rising borrowing costs. Ryutaro Kimura, senior fixed income strategist at BNP Asset Management, noted that the bond market has to some extent issued a warning about fiscal expansion. Finance Minister Satsuki Katayama declined to comment on yields approaching 3%. Since taking office last October, Prime Minister Takaichi has pursued an investment-led growth strategy centered on semiconductors and AI, with markets concerned this will further worsen the already fragile fiscal situation.