Benchmark Japanese government bonds weakened on Tuesday, the final trading day of the year, capping a volatile period that saw yields post their sharpest annual rise in three decades. Investor concerns over Japan’s public finances and shifting monetary policy continued to weigh on the bond market.
The 10-year Japanese government bond (JGB) yield climbed 2 basis points to 2.075%, remaining close to the 2.1% level reached on December 22, its highest point since February 1999. Yields, which move inversely to prices, have surged by nearly one full percentage point in 2025, marking the steepest annual increase since 1994.
JGBs have faced persistent volatility throughout the year as the Bank of Japan gradually reduced its bond-buying operations, inflation pressures became more entrenched, and the government pursued an aggressive growth strategy built on large-scale fiscal stimulus.
Longer-dated yields accelerated sharply from early November, reaching successive highs amid mounting concerns over the scale of Prime Minister Sanae Takaichi’s spending plans. At the same time, short-term yields moved higher after the central bank raised policy rates and signaled that further tightening could be ahead.
The two-year JGB yield, which is most sensitive to changes in monetary policy, rose 1 basis point to 1.165%. Earlier this month, the BOJ lifted its benchmark interest rate to 0.75%, the highest level in 30 years. A summary of opinions from the meeting released on Monday showed that several board members favored additional rate hikes to counter inflationary pressures.
According to Yusuke Matsuo, senior market economist at Mizuho Securities, July is currently seen as the most likely window for the next rate increase. However, he noted that the timing could shift if the yen continues to weaken against the U.S. dollar, potentially forcing policymakers to prioritize currency stability.
Meanwhile, movements at the long end of the curve were mixed. The 20-year JGB yield slipped 1.5 basis points to 2.985%, while the 30-year yield also fell 1.5 basis points to 3.41%, suggesting some demand for longer maturities despite the broader rise in yields.
