Japan's 40-Year Bond Yield Hits 20-Year High

Japan’s 40-year government bond yield has jumped to 3.47%, the highest level in 20 years. This follows Japan’s 30-year bond yield, which reached a 25-year high on May 12, 2025.

Why Are Bond Yields Rising?

The rise began after the Bank of Japan (BOJ) ended its Yield Curve Control (YCC) policy in March 2024. YCC was used since 2016 to keep long-term interest rates low. With this policy gone, the bond market is now setting the rates based on demand and supply.

Japan has a very high debt level — its debt is 263% of its GDP. At the same time, its economy shrank by 0.7% recently, according to TradingEconomics.

What This Means for the World

Japan has always had very low bond yields, which helped keep global borrowing costs low. But now, with yields rising in Japan, other countries like the U.S. may also see their bond yields go up.

The U.S. has a high debt-to-GDP ratio of 120%, as per the St. Louis Fed. Japan has been a major buyer of U.S. Treasuries, but with higher returns at home, it may reduce its purchases. This could push U.S. interest rates even higher.

BOJ’s Tough Spot

The BOJ is facing inflation and a weak yen. If interest rates go up too much, the Japanese government will have to pay more to borrow money. But if the economy slows down, Japan may need to borrow even more, adding to its debt problem.

Investors Looking for Alternatives

Since events like the freezing of Russia’s assets in 2022, many central banks have started buying more gold and even Bitcoin. A recent Bitwise Investments report says Bitcoin is becoming a popular hedge against inflation and debt crises in developing countries.

Global Impact

Long-term bonds from other countries, like Austria’s 100-year bonds, are also under pressure. Investors are becoming more cautious about long-term debt. The “yen carry trade,” where people borrow yen to invest in higher-yield countries, might also change if Japan’s rates keep rising.

Final Thoughts

Japan’s rising bond yields are a warning sign for the global financial system. Investors are watching closely to see what the BOJ does next and how this shift might affect markets worldwide.