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Japanese government bond yields hit record highs! -- Will it trigger a seismic shift in the global financial markets?

On April 6th, the 10-year Japanese government bond yield reached 2.432% intraday, a level unseen since July 1997. In other words—bond prices from over twenty years ago are now reappearing in Tokyo in 2026.

What does a rising yield mean?

Rising yields mean it’s more expensive for the Japanese government to borrow money. Climbing from near zero to 2.4% may not seem like a big number, but the scale of Japanese government bonds is another story—by the end of 2025, the total outstanding amount exceeded 1,342 trillion yen, with government debt accounting for 263% of GDP, the only country among major economies with such a ratio. Every 0.1% increase in interest costs adds more pressure on the fiscal side.

What has the Bank of Japan done?

Here’s a fact worth clarifying: the Bank of Japan (BOJ) has not been "raising interest rates continuously over the past few years." Instead, it officially moved away from negative interest rates only in March 2024. The rate hike process was as follows: exiting negative rates in March 2024, raising to 0.25% in July 2024, to 0.5% in January 2025, and to 0.75% in December 2025—just over a year in total. Yet, bond market reactions have already pushed yields back to nearly thirty-year highs.

The reason for the rate hikes is to curb inflation. But Japan’s problem is like trying to lose weight with a scale—using the tool itself isn’t wrong, but the underlying structural issues remain. With such a large debt burden, rising interest costs will only tighten fiscal space further.

What are the impacts?

First, banks. The Japanese banking system holds a large amount of government bonds. Rising yields mean these assets’ book values shrink, leading to paper losses. This lesson was learned during the Silicon Valley Bank collapse in 2023, and now it’s playing out in the Japanese context.

Next, fiscal policy. Japan’s debt repayment budget for fiscal year 2026 was already at a record high. As interest rates continue to rise, the government will face tough choices—either cut spending locally or raise taxes, both of which are difficult options.

Then, the yen. Rising Japanese bond yields should theoretically support yen appreciation. But in reality, the yen-dollar exchange rate has been hovering around 160, and arbitrage trading (borrowing low-interest yen to buy other assets) hasn’t fully loosened. This means that if the yen rapidly appreciates, it could trigger a large-scale unwinding of positions, potentially impacting global financial markets. This scenario was rehearsed in August 2024.

One point worth noting: yields on Japanese and U.S. Treasuries are rising almost in sync. The two largest sovereign bond markets in the world rising together is not a coincidence—it signals a systemic increase in global capital costs.

The low-interest-rate environment of the past decade has been an implicit assumption underlying asset valuations—real estate, stock multiples, corporate financing costs—all built on that premise. Now, that premise is loosening.

Actual impact on holdings

If you hold Japanese-related assets, especially J-REITs (Japanese real estate investment trusts), you need to reassess. These assets are built on a low-interest-rate foundation, and that base is shifting. Meanwhile, companies holding yen assets or export-oriented firms might benefit from exchange rate revaluation, but timing is hard to predict.

BOJ Governor Ueda and Masayoshi’s situation is a "dilemma"—a term too mild. On one hand, inflation is burning hot; on the other, debt sustainability is wavering. They’ve currently chosen the former. Whether this gamble is correct will probably only be known after a few years.

Operational insights

First, in the crypto space, the upcoming BOJ monetary policy meeting at the end of April will decide whether the BOJ raises interest rates. This is currently the most impactful event on global financial markets besides the Fed’s rate cuts. If rates are raised, global liquidity will tighten further, funds will flow into the yen and Japanese bonds, and Bitcoin and gold will likely decline.

Next, in the forex market, since mid-February, the yen has been strengthening and is currently consolidating at high levels. If the rate hike occurs in late April, the yen could break through long-term resistance levels and rise further. Traders can consider positioning in yen long positions on Gate’s TradFi platform in advance.