Japan 10-Year Bond Yield Hits 3% for First Time Since 1996 as Global Bond Rout Deepens

Japan's 10-year government bond yield reached 3% on September 1 for the first time in roughly three decades, a milestone that anchored a broad global bond selloff as multiple pressures converged at once. Oil prices climbing above $90 a barrel on renewed Middle East fighting stoked fresh inflation fears, while Fed Chair comments at Jackson Hole drove traders to price in a 65% chance of a Federal Reserve rate hike at its September meeting, up sharply from 41% the prior week.

BOJ rate hike expectations added a distinctly Japanese dimension to the move. BOJ Deputy Governor Ryozo Himino had kept the door open to a September increase in a speech the previous week, and markets were already adjusting the perceived terminal rate upward from 1.5% to as high as 1.75% or beyond. The prospect of simultaneous tightening by both the Fed and the BOJ, combined with oil-driven inflation pressure, sent yields surging from the U.K. to the United States. U.S. Treasury yields moved higher in parallel, extending the global rout.

The dollar came under pressure against the yen despite the rise in Treasury yields, an unusual dynamic that analysts noted as significant. The yen was trading near the 160 level, with USD/JPY weighed down by the growing probability of a BOJ hike. Stock markets around the world fell under pressure as the bond selloff deepened and borrowing costs rose.