On June 1, 2026, Chinese media outlet Caixin reported that, in response to the sharp surge in Japanese government bond yields, the Bank of Japan is expected to move forward with policy adjustments, aiming to balance fiscal considerations with inflation control.

The article stated that Prime Minister Takaichi is compiling a supplementary budget of approximately 3 trillion yen to address rising energy prices due to the Middle East conflict, and the market expects an increase in government bond issuance to secure those funds. Consequently, the yield on 10-year Japanese government bonds surged last week to 2.809%, its highest level since 1996, and 30-year bond yields also rose above 4%.

It was also pointed out that the Ministry of Finance's alert line for yields, set during budget compilation, is 3%, and exceeding this would increase debt repayment costs and constrain policy. The article quoted Jesper Koll of Monex Group, who stated, "Bond investors fully understand that the Japanese government cannot increase fiscal spending without increasing debt issuance."

The article mentioned inflation as a factor in the rising yields. While the Bank of Japan's new core inflation indicator, excluding the effects of government subsidies, reached 2.8% in April, the government-announced core consumer price index remained at 1.4%, suggesting that subsidies are suppressing superficial inflation. It was reported that if subsidies end, actual inflationary pressures will become apparent, potentially further intensifying upward pressure on yields.

The article also referred to Julius Baer analyst Louis Chua's observation that recent developments, including increased spending on fuel subsidies, are deepening bond market concerns about Japan's fiscal situation this year.

The article explained that the BOJ has been gradually reducing its government bond purchases since 2024 as an exit from quantitative easing. It then introduced that, amid increasing upward pressure on yields from both fiscal and inflationary perspectives, the Bank of Japan is considering revising its current asset purchase reduction plan at its June meeting to alleviate interest payment cost pressures and support fiscal management. The article also conveyed an expert's opinion that, considering the political headwinds, there is no reason for the Bank of Japan to continue reductions in the next fiscal year.

It also mentioned that Bank of Japan Deputy Governor Ryozo Himino commented on the importance of adjusting the degree of monetary easing at an appropriate pace and maintaining market confidence that inflation will be adequately controlled. A Nomura Securities strategist was reported to have expressed the view that halting reductions would help curb rising yields, and an interest rate hike could alleviate concerns that the Bank of Japan is lagging in its response to inflation. (Edited and translated by Kawashiri)