Japan’s 10-year bond yields soar to highest levels since 2008

Investors in Japan are speculating on the recent rise of 10-year government bond yields to their highest levels since 2008. Higher yields are said to signal market optimism traditionally, but Japan’s current economic situation on the ground has everyday residents worried about a massive downturn.

Japan 10-year government bond yields hit a peak not seen since the 2008 economic downturn on Monday, as big investors signaled confidence in the market, expecting further interest rate hikes from the Bank of Japan (BoJ) and greater stabilization. The BoJ previously raised the benchmark rate by 25 basis points in January, to the current level of 0.5% — a level not seen in 17 years. The bond yield rate tapped a high of 1.591% at 3:40 p.m. (JST).

Typically, investors flee to perceived low-risk assets like government bonds in times of economic uncertainty, or when inflation — and its subsequent remedial rate hikes — is expected. As the short-term, central bank-dictated interest rate rises, however, holders of older bonds with lower yield rates locked in have a hard time selling them, as market actors can now enter and buy new bonds with a higher yield, resulting in prices for these securities being forced downward.

Further, markets being flooded with money can coincide with increasing yields. This is likely what happened back in 2008, after the U.S. government intervened to bail out the banking industry. Investor confidence in riskier assets returned, money exited back into the wider market, and bond prices fell as their yields inversely climbed, incentivizing investment back into these long-term securities.

What the rising bond rate means for Japan

While Japan’s 10-year government bond yield rate has cooled slightly at the time of writing, some market watchers, like CEO of SBI Global Asset Management Tomoya Asakura, say the rate could reach levels as high as 2%. Asakura noted on social media platform X (translated): “The 10-year yen bond yield has reached a level not seen since the Lehman Shock, with a 2.0% yield in sight.” He continued by stating that “The market is not yet prepared for this impact.”

Asakura fears the impact of “rising borrowing costs” for businesses and consumers, as well as the effects of a stronger yen on export companies. Further, the CEO predicts an increase in the interest payment burden on the BoJ for yen bonds held by the institution.

More fiscally conservative voices view the tightening as a positive signal, while on the ground, everyday residents of the archipelago continue to suffer under both hawkish and dovish policies, regardless. Whether by way of a stronger JPY and attendant higher borrowing costs, or a weaker yen and continued out-of-control inflation, it looks like things will invariably get harder for low-wage earners. If Asakura’s warnings come true, the result could even be a 2008-style market collapse.

Trading Economics detailed the bond yield surge, reporting on data from January: “Inflation-adjusted real wages—a key measure of consumer purchasing power—fell 1.8% year-on-year, marking the first decline in three months.” Notably, Japan is also facing a challenging influx of tourists, incentivized by state-sponsored benefits such as free domestic air travel, making it harder for locals to live economically viable lives even in their own communities.

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