Japan's 10-year government bond yield reversed course and edged higher on Tuesday following a moderately firm outcome at a same-maturity bond auction. The yield rose 0.5 basis points to 2.12%. Markets remain concerned that the Bank of Japan is lagging in addressing inflation risks, anticipating further rate hikes.
In Tokyo on January 6, 2026, a 10-year Japanese government bond auction produced a moderately firm result, prompting the yield to reverse its prior decline and rise 0.5 basis points to 2.12%. Ahead of the auction, it had fallen 1 basis point to 2.105%.
"Despite the current yield level, which is high, the auction outcome was not strong," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. He added, "That is because the market is concerned that the Bank of Japan (BOJ) is behind the curve in dealing with the risk of inflation and it will have to raise the rate higher."
In the previous session, 10-year yields had climbed to a near three-decade high as markets braced for additional BOJ rate hikes. The central bank increased its policy rate to 0.75% from 0.5% last month, yet the yen has struggled to strengthen amid expectations of a gradual pace for future increases. A weaker yen raises import costs and stokes inflation, bolstering bets on more hikes.
Investors now anticipate the BOJ's terminal rate to reach around 1.7%, according to forward one-year overnight index swaps (OIS) two years ahead, which price in about 1.6956%. The OIS serves as an effective gauge of market views on BOJ monetary policy.
Yields on longer-dated bonds also increased, with the 20-year JGB yield edging up 1.5 basis points to 3.06% and the 30-year yield rising 2 basis points to 3.475%. Meanwhile, the two-year yield dipped 0.5 basis points to 1.185%, while the five-year yield held steady at 1.595%.
