Japan's Bond Yields Post Sharpest Annual Rise in Decades, Posing Global Market Risk

By the end of 2025, the yield on Japan's benchmark 10-year government bond had surged nearly one percentage point for the year, marking its sharpest annual increase since 1994. The dramatic rise, driven by the central bank's bond-buying cuts, persistent inflation, and deep concerns over fiscal sustainability amid massive government stimulus, has positioned Japanese debt dynamics as a major potential risk for global markets in 2026.

Analysts warn that rising yields could trigger an unwinding of the massive yen carry trade, prompting capital to flow back into Japan and destabilizing other markets, particularly U.S. Treasuries, for which Japan is a key foreign holder.