Long-term interest rates are under renewed upward pressure, with the benchmark 10-year government bond yield briefly reaching 2.990% on the 1st, rapidly approaching the assumed interest rate of 3% used for debt servicing costs. Since fiscal 2014, when the practice of adding a crisis premium to interest rates became normalized, there has been no precedent for reaching the assumed rate level before the latter half of the fiscal year. If the rise in interest rates does not subside, the risk of reduced policy flexibility is becoming increasingly real. According to Japan Mutual Securities, the long-term rate reaching 2.990% is the first time in 30 years, since September 1996. This year, global interest rate increases have pushed the long-term rate up to 2.945% on August 18, but just as the yen-buying intervention by the Japanese and U.S. governments at the end of July halted the yen depreciation accompanied by rising rates, concerns are spreading within the government. In last year's budget formulation, the government set the assumed interest rate for fiscal 2026 at 3.0%, allocating 31.2758 trillion yen for national debt service, including interest payments, out of total expenditures of 122.3092 trillion yen. However, reflecting current trends, the fiscal situation is precarious. According to the Ministry of Finance, at least since fiscal 2014 under the Abe administration, the assumed rate has been calculated by adding a 1.1% crisis premium, but the current situation is described as "on the verge of eating through the buffer of over 1%." Although the Takaichi administration has indicated it will not compile a supplementary budget, with the "near triple burden" of securing funds for growth investment, consumption tax cuts, and increased defense spending, the depletion of fiscal resources could shake future policy implementation. In the market, there are lingering voices that "3% for long-term rates is just a waypoint," and if the upward trend strengthens toward year-end, interest payment costs could exceed expectations, potentially squeezing policy spending.
10-year JGB yield rises toward 3% assumed rate, indicating higher rates and lower bond prices.
Rising Japanese long-term rates and government concerns about fiscal pressure may lead to intervention, but no clear directional signal for USD/JPY.
