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Japan’s 10-year borrowing costs rose to a 16-year high on Thursday as Tokyo joined a global bond sell-off sparked by Germany’s decision to spend more on defence.
The yield on the 10-year Japanese government bond rose 0.06 percentage points to 1.5 per cent, its highest level since 2009. The JGB has risen almost 0.4 percentage points since the start of 2025.
Germany on Wednesday saw its biggest rise in borrowing costs in 28 years as its bonds sold off following a historic deal between political parties to spend hundreds of billions of euros on defence and infrastructure.
The rise in German bond yields comes amid rising yields in other countries, including the UK, on the back of government plans to increase fiscal spending.
Traders in Asia said that the move was strongly sentiment driven, and that it was hard to identify who was behind the selling, particularly as major banks and institutions tend to be buyers of JGBs in March ahead of the end of the Japanese financial year.
“It’s a similar story across the world — a bit of contagion from Germany,” said Mitul Kotecha, a macro strategist at Barclays.
A “shift in views towards Japan” following stronger-than-expected economic growth and higher inflation has also raised market expectations of more hawkish policy from the Bank of Japan, he added.
The BOJ has raised interest rates twice in the past year, as it attempts to normalise monetary policy after years of ultra-low rates.
Thursday’s rise follows steady increases in JGB yields since the start of 2025 and comes as Japanese inflation continues to exceed the central bank’s 2 per cent target.
The uncertainties swirling around Japan’s interest rate outlook and the JGB market were highlighted in a speech on Wednesday by the Bank of Japan’s deputy governor, Shinichi Uchida.
In a speech that touched on the current state of the global economy, Uchida pointed to heightened geopolitical tension as one of the factors that could “affect both economic activity and prices in the US, such as the policies of the new administration”.
Some traders have begun to bet the BoJ would raise interest rates at its next meeting later in March. The majority of economists, however, continue to forecast the next increase will be in July.
The yen was stable through the Tokyo morning on Thursday, hovering at about ¥149.2 against the US dollar. Japanese stocks rose during the morning, with the broad Topix benchmark climbing 1.2 per cent.
The shares of Japan’s two biggest defence manufacturers, Mitsubishi Heavy and Kawasaki Heavy, surged by 10 per cent and 9.8 per cent respectively, on expectations that Japan will further increase its military spending.
