Japan’s 10-year government bond yield climbed to 3% on September 1, a level not seen since 1996, after rising more than 1.4 percentage points since August 2025. The move marks a sharp reversal from the negative interest-rate era that prevailed just two and a half years ago. Inflation expectations have increased as oil prices moved above $85 per barrel amid geopolitical tensions, while Japan’s reliance on imported energy leaves it exposed to commodity-driven price pressures. The Bank of Japan (BOJ) raised its policy rate to 1% in June 2026, the highest level since 1995, and has been reducing its Japanese government bond purchases. At the same time, ministries submitted record budget requests of approximately 143 trillion yen, or about $890 billion, for the upcoming fiscal year under Prime Minister Sanae Takaichi. Yields have also risen across the curve: the five-year yield reached a record high and the two-year yield hit its highest level in 31 years. The 10-year yield was around 1.6% when Takaichi took office in October 2025, meaning it has nearly doubled in less than a year. The BOJ ended its negative interest-rate policy and yield curve control (a policy that targets bond yields) in March 2024. Japan’s public debt exceeds 200% of GDP, and a 3% long-term rate had previously served as a stress-test assumption in government budget calculations. Higher borrowing costs could therefore take a growing share of government revenue. The repricing also matters internationally because Japanese investors are among the largest holders of foreign bonds, including U.S. Treasuries, European sovereign debt and corporate credit. The BOJ was the last major central bank to leave negative rates, and its tightening marks the closing of a monetary-policy era that shaped fixed-income markets for much of the past decade.