Japan's 10-year government bond yield crossed 3% on Tuesday for the first time since 1996, increasing government financing costs and challenging Prime Minister Sanae Takaichi's strategy of tax cuts and multiyear investment. Japan expects government debt to reach 1,145 trillion yen ($7.2 trillion) at the end of March 2027, while debt-servicing costs are projected to rise 17.1% to a record 36.64 trillion yen in the next fiscal year. Takaichi's draft economic and fiscal guidelines envisage 370 trillion yen of public- and private-sector investment by fiscal 2040, and she has decided to cut the consumption tax on food and beverages to 1% from 8% for two years starting next April. The financing of those plans remains unclear, leaving investors concerned about possible additional bond issuance. Higher Japanese yields are also altering global capital flows. Japanese investors sold a net 3 trillion yen ($18.7 billion) of overseas debt through Aug. 22, the biggest year-to-date outflow since the 2022 bond selloff, while a survey of 82 corporate pension funds found the net share planning to increase domestic bond holdings was the highest since 2008. Japan still holds about $2.4 trillion in overseas debt, but dealers and asset managers report weaker demand for foreign bonds as currency-hedging costs remain high and the relative appeal of Japanese government bonds improves. The shift is being viewed as a gradual reduction in Japan's role as a marginal buyer of overseas debt rather than a large-scale repatriation of capital.