Japan's 10-year government bond yield climbed to 2.93% on Monday, its highest level since 1996, as disappointing economic growth data added to market pressure across the curve. The five-year yield also struck a record high at 2.17%, while the 30-year rate rose to 4.07%.
The rally in yields followed data showing the economy grew at an annualised rate of just 1.1% in the second quarter, well below the 2.0% forecast, with capital expenditure declining 1.2%. Markets are now pricing in further monetary tightening, with sources indicating the Bank of Japan is considering raising its policy rate to 1.25% as early as September, a move backed by Prime Minister Sanae Takaichi's government.
Tensions over monetary policy have surfaced internationally, after U.S. Treasury Secretary Scott Bessent publicly singled out Bank of Japan Governor Kazuo Ueda in a televised interview on August 4. Meanwhile, the government has yet to clarify how it will finance a planned two-year cut to food consumption taxes starting in April 2027.