Summary：Japan Bond Market Shows Growing Doubt Over Inflation and Fiscal Policy TOKYO, July 9 – Japan’s bond

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Japan Bond Market Shows Growing Doubt Over Inflation and Fiscal Policy
TOKYO, July 9 – Japan’s bond market is flashing warning signs that confidence in the Bank of Japan’s ability to tame inflation is eroding, even as the government’s expansive spending plans add pressure to the country’s fiscal stance. Yields on benchmark 10‑ and 20‑year Japanese government bonds (JGBs) have climbed sharply in recent sessions, reflecting investor unease about the dual challenge of rising prices and mounting debt.

**Key Developments**
The 10‑year JGB yield rose to 0.78 %, its highest level since early 2023, while the 20‑year yield touched 1.42 %, a level not seen since the aftermath of the 2022 energy shock. The move came after the Ministry of Finance unveiled a supplementary budget that earmarks an additional ¥5 trillion for infrastructure and digital transformation, pushing the primary‑balance deficit toward ¥30 trillion for the fiscal year. Simultaneously, core consumer‑price inflation, excluding fresh food, held at 2.9 % in May, well above the BOJ’s 2 % target and prompting speculation that the central bank may need to reconsider its ultra‑low‑rate stance sooner than markets had priced in.

**Industry Analysis**
Analysts say the bond market’s reaction is a barometer of growing skepticism about the BOJ’s yield‑curve control (YCC) framework. “Investors are questioning whether the BOJ can keep the 10‑year yield around 0 % without triggering a surge in inflation expectations,” noted Hiroshi Tanaka, senior fixed‑income strategist at Nomura Securities. The simultaneous rise in long‑dated yields suggests that market participants are demanding a higher term premium to compensate for perceived fiscal risk. Japan’s debt‑to‑GDP ratio, already above 260 %, is projected to climb further if the government’s spending agenda continues unchecked, raising concerns about the sustainability of current monetary policy.

**Future Outlook