Source: Ministry of Finance Japan
This service uses government bond interest rate data published by the Ministry of Finance Japan, but the content of this service is not guaranteed by the Ministry of Finance.
This service uses statistical data published by the Bank of Japan, but the content of this service is not guaranteed by the Bank of Japan.
According to MOF data, at end‑February 2026 JGB yields fell across the curve: the 10‑year yield declined from 2.247% at the prior month‑end to 2.132% (−11.5bps). The yield curve exhibited bull flattening (flattening accompanied by yield declines): the 10Y‑2Y spread narrowed from 0.996% to 0.882% (−11.4bps) and the 30Y‑10Y spread narrowed from 1.330% to 1.210% (−12.0bps). On a monthly average basis the 10‑year yield moved only slightly from 2.203% to 2.198%, while the 2‑year rose from 1.215% to 1.269%, indicating differentiated moves across the short‑ and long‑end. On the real economy side, the Cabinet Office coincident index improved from 116.3 to 117.0 and the BOJ Tankan large‑manufacturers manufacturing DI remained firm at 15. The latest CPI (all items, year‑on‑year) from MIC is 1.5% as of January 2026, down from 2.1% the prior month, suggesting easing inflationary pressure that may be supporting the decline in yields.
MOF data show end‑February 2026 JGB yields fell across maturities as follows: 1Y 1.023% (prior month 0.996% → +2.7bps), 2Y 1.250% (prior month 1.251% → −0.1bps), 3Y 1.335% (prior month 1.381% → −4.6bps), 5Y 1.594% (prior month 1.666% → −7.2bps), 7Y 1.776% (prior month 1.884% → −10.8bps), 10Y 2.132% (prior month 2.247% → −11.5bps), 15Y 2.636% (prior month 2.848% → −21.2bps), 20Y 2.979% (prior month 3.186% → −20.7bps), 25Y 3.286% (prior month 3.543% → −25.7bps), 30Y 3.342% (prior month 3.577% → −23.5bps), 40Y 3.440% (prior month 3.681% → −24.1bps).
The most pronounced declines were in the ultra‑long end: the 25‑year fell 25.7bps and the 40‑year fell 24.1bps. In the mid‑sector the 10‑year fell 11.5bps, while the short end saw the 1‑year rise an exception at +2.7bps. This pattern — short‑rate downward rigidity combined with larger long‑rate declines — is characteristic of bull flattening.
At end‑February 2026 the yield curve remained clearly upward sloping (normal yield curve), rising monotonically from 1Y 1.023% to 40Y 3.440%: longer maturities continued to carry higher yields. However, the slope of the curve eased month‑over‑month, indicating ongoing flattening.
Looking at monthly averages, from January to February 2026 the 2‑year rose from 1.215% to 1.269% (+5.4bps), whereas the 10‑year edged down from 2.203% to 2.198% (−0.5bps) and the 30‑year fell from 3.526% to 3.437% (−8.9bps). This short‑term rise in short yields combined with long‑term falls contains elements of bear flattening (flattening with rising short rates), but because end‑of‑month levels show broad declines, the overall classification is bull flattening.
MOF data show the 10Y‑2Y spread narrowed from 0.996% in January 2026 to 0.882% in February 2026 (−11.4bps). A narrowing of this spread reflects either relatively higher short rates or relatively lower long rates. End‑of‑month changes were −0.1bps for the 2‑year and −11.5bps for the 10‑year, indicating the larger fall in long yields is the primary driver of the spread compression.
The 10Y‑2Y spread functions as a leading indicator of the business cycle: spread widening signals stronger expansion expectations, while narrowing signals increased concern about slowdown. This contraction may reflect either diminished long‑run growth expectations or heightened short‑term tightening expectations. Yet the Cabinet Office coincident index rose from 116.3 to 117.0, indicating the real economy remains firm. The divergence suggests financial markets are more cautious about the outlook than current real‑time activity.
MOF data show the 30Y‑10Y spread narrowed from 1.330% in January 2026 to 1.210% in February 2026 (−12.0bps). End‑of‑month changes were −11.5bps for the 10‑year and −23.5bps for the 30‑year, confirming larger declines in the ultra‑long sector.
The 30Y‑10Y spread reflects ultra‑long fiscal confidence: widening indicates a higher long‑term fiscal risk premium, narrowing indicates reduced fiscal concern. In Japan — with public debt exceeding 250% of GDP — a contraction in the ultra‑long spread is an important signal that market confidence in long‑term fiscal sustainability is being preserved.
The 40Y‑10Y spread also narrowed from 1.434% to 1.308% (−12.6bps), showing consistent moves across the ultra‑long sector. This pattern suggests robust demand for ultra‑long JGBs by domestic institutional investors or that the BOJ’s QT effects on the ultra‑long sector have been limited.
MOF data show the nominal 10‑year yield at end‑February 2026 was 2.132%. MIC’s CPI (all items, year‑on‑year) was 1.5% as of January 2026; February 2026 CPI data are not provided. Therefore the end‑February 2026 real 10‑year rate (nominal 10Y yield − CPI y/y) cannot be precisely calculated.
As a reference, in January 2026 the nominal 10‑year was 2.247% and CPI y/y was 1.5%, implying a real 10‑year rate of 0.747%. This is a positive real rate and indicates an exit from financial repression (negative real rates). Prior to December 2025 CPI y/y frequently exceeded 2.1%, during which nominal yields likely lagged inflation, implying sustained episodes where nominal yields were below inflation.
A shift to positive real rates has several fiscal implications. First, it raises the government’s real borrowing cost: when nominal rates exceed inflation, inflation no longer erodes the real value of debt. Second, it improves real returns for savers: under negative real rates depositors and nominal bondholders saw purchasing power decline, which abates under positive real rates. Third, it exerts upward pressure on r (the effective interest rate) in the debt‑dynamics equation.
If the CPI y/y in February 2026 remains around 1.5%, the nominal 10‑year of 2.132% would still imply a positive real rate. If the fall in nominal yields from 2.247% to 2.132% outpaced the decline in inflation, the real rate would fall; with current data limitations this cannot be determined definitively.
BOJ call‑rate data are not provided, preventing a direct comparison between the policy rate and JGB yields. Nonetheless, the rise in the 2‑year monthly average from 1.215% to 1.269% suggests upward pressure in short‑term money markets.
If the BOJ is proceeding with policy normalization, gradual policy rate increases would push short rates up and exert upward pressure on the short end of the curve. Conversely, the fall in long yields suggests the market is pricing lower long‑run growth or inflation. The combination of rising short rates and falling long rates commonly appears when monetary tightening coincides with recession or growth‑slowing concerns.
If the BOJ is advancing QT (Quantitative Tightening), reducing its JGB holdings would put supply pressure on the market and tend to raise yields. However, JGB yields fell across maturities in February 2026, implying QT effects were limited or outweighed by demand factors (e.g., purchases by domestic institutional investors or safe‑haven demand from foreign investors).
Japan’s unique holder structure — BOJ holdings ratio 46% and domestic institutional holdings ratio 88% — acts as a buffer that can stabilize market functioning even as QT proceeds. In particular, life insurers and pension funds’ appetite for ultra‑long bonds likely contributed to the compression of the 30Y‑10Y spread.
The Cabinet Office’s CI shows the coincident index improved from 116.3 to 117.0. (Note: the source text reports these changes as occurring between 2025/1 and 2025/2.) This indicates the current state of the economy is in an expansionary phase. The leading index eased slightly from 107.7 to 107.5 and the lagging index edged down from 111.6 to 111.4.
The coincident index improvement reflects firmer production and employment conditions. METI’s industrial production index rose from 99.9 in 2025/1 to 102.2 in 2025/2 (+2.3%), confirming a manufacturing recovery. Ordinarily, such real‑side improvements would exert upward pressure on long yields, yet the 10‑year JGB fell in February 2026.
This seemingly contradictory combination can be explained by: (1) markets doubting the persistence of the growth improvement — the leading index decline signals downside risk and long yields may price that risk in; (2) a fall in inflation (CPI y/y 2.1%→1.5%) which can curb real‑rate pressure and allow nominal yields to fall; and (3) external factors (e.g., lower US yields or heightened geopolitical risk) boosting safe‑asset demand for JGBs.
MOF trade data show a trade surplus of ¥113.5 billion in December 2025, supporting a stable external balance. Persistent current‑account surpluses imply Japan remains a net creditor and can finance government borrowing from domestic savings.
BOJ Tankan shows the large‑manufacturers manufacturing DI in 2025 Q4 at 15 (future 12), improving from 14 (future 12) in the prior quarter. A positive DI indicates more firms report “favorable” than “unfavorable.”
The large non‑manufacturers DI is 34 (future 28), unchanged from the prior quarter, showing continued strength in services. The medium‑sized manufacturing DI is 16 and the small‑sized manufacturing DI is 6; while DI tends to be lower for smaller firms, all remain in positive territory.
BOJ Tankan’s assumed exchange rate for 2025 Q4 is ¥147.06/USD for all sizes/all industries and ¥146.48/USD for large manufacturers, revised from ¥145.68/USD previously — indicating firms expect a weaker yen. Yen depreciation boosts exporters’ profits and can raise corporate tax receipts, supporting fiscal revenues. However, it can also raise import costs and add inflationary pressure. MOF trade statistics for December 2025 show exports ¥10,408.3 billion and imports ¥10,294.8 billion, maintaining a trade surplus.
Firm corporate sentiment supports the tax base, since corporate tax revenues correlate with corporate profits. Absent explicit tax revenue data, however, this implication cannot be empirically verified here.
MOF trade statistics show a trade surplus of ¥113.5 billion in December 2025. The prior months recorded deficits (¥232.1 billion deficit in October 2025 and ¥242.4 billion deficit in September 2025), so December marked a swing to surplus. Exports were ¥10,408.3 billion and imports ¥10,294.8 billion.
The surplus turnaround reflects stronger export growth (exports rose 6.6% from October’s ¥9,766.2 billion to December’s ¥10,408.3 billion) while imports increased 3.0% (from ¥9,998.3 billion to ¥10,294.8 billion), such that export growth outpaced import growth.
Japan’s fiscal sustainability with debt above 250% of GDP depends on: (1) maintaining current‑account surpluses, enabling accumulation of net foreign assets and financing of government debt from domestic savings; (2) sustaining a high domestic‑holder ratio (88%) of JGBs — as long as the bulk of JGBs are held domestically, exchange‑rate and foreign‑holder run risks are limited; and (3) having debt denominated in the domestic currency. The February 2026 decline in JGB yields signals the market’s view that these conditions remain in place. In particular, the compression of the 30Y‑10Y spread suggests ultra‑long fiscal confidence has not deteriorated. Nonetheless, QT‑driven shifts in the holder structure remain a risk and warrant monitoring of holder‑by‑holder balances.
Broad declines in JGB yields reduce the government’s interest payment burden. Lower funding costs for newly issued and rollover debt will, ceteris paribus, reduce future interest expenditures. The larger declines in ultra‑long yields (25Y −25.7bps, 30Y −23.5bps, 40Y −24.1bps) are especially beneficial for long‑term interest cost reduction.
On a monthly average basis the 10‑year fell slightly from 2.203% to 2.198%, indicating a modest decline in average funding costs over the year. However, the 2‑year monthly average rose from 1.215% to 1.269%, raising short‑term funding costs. The government’s financing strategy and the balance between short‑ and long‑dated issuance will influence total interest outlays.
In the debt‑dynamics identity, the r (effective interest rate) − g (nominal GDP growth rate) differential determines debt‑to‑GDP evolution. If r < g the debt ratio improves; if r > g it deteriorates.
The nominal 10‑year of 2.132% in February 2026 must be compared with nominal GDP growth (data not provided). The coincident index improvement from 116.3 to 117.0 suggests positive real GDP growth. If nominal GDP growth (real growth plus CPI y/y 1.5%) exceeds 2.132%, then r < g holds.
However, the shift to positive real rates (real 10Y 0.747% in January 2026) exerts upward pressure on r. Continued BOJ policy tightening could further lift short rates and shift the yield curve upward, raising r. Conversely, continued disinflation (2.1%→1.5%) would depress nominal GDP growth g and widen r − g.
February 2026 JGB market moves point to short‑term relief in fiscal costs: lower yields cut borrowing costs and narrower term spreads imply preserved long‑term market confidence. The coincident index improvement and firm DI support a stable tax base.
Nonetheless medium‑to‑long‑term risks remain. First, positive real rates eliminate the inflationary erosion of debt’s real value. Second, BOJ QT could alter the domestic holder structure and worsen market supply‑demand balances. Third, the leading index decline warns of potential future growth slowdown and weaker tax receipts.
Under the IMF’s fiscal sustainability framework (MAC SRDSF), Japan’s fiscal sustainability hinges on: improvement in the primary balance, maintenance of a negative r − g differential, manageability of gross financing needs, and retention of a high domestic holder share. As of February 2026, lower yields contribute to an improved r − g position, but future outcomes will depend on monetary policy, GDP growth, and the evolution of the primary balance. If the 10Y‑2Y spread contraction presages a growth slowdown, risks to tax revenues and the primary balance could materialize.
Yield curve: The relationship between bond yields and remaining maturities. Normally upward sloping (normal yield), it can invert (short rates > long rates) in recessionary periods.
Bull flattening: A flattening of the yield curve accompanied by falling yields (prices rising). Occurs when declines in long yields exceed those in short yields.
Term spread: The yield difference between bonds of different maturities. The 10Y‑2Y spread is a cyclical indicator; the 30Y‑10Y spread reflects ultra‑long fiscal confidence.
Real interest rate: The nominal interest rate minus inflation. Real rate = nominal rate − CPI year‑on‑year. Negative real rates imply financial repression and erode the real value of debt.
r‑g differential: The difference between the effective interest rate (r) and nominal GDP growth (g). If r < g, the debt‑to‑GDP ratio tends to improve; if r > g, it tends to worsen.
QT (Quantitative Tightening): Quantitative Tightening: the central bank reduces its holdings of assets such as government bonds, withdrawing liquidity. The opposite of Quantitative Easing (QE).
Business conditions DI: The BOJ Tankan diffusion index of business conditions. It is the percentage of firms reporting “favorable” minus those reporting “unfavorable.” A positive value indicates overall favorable sentiment.
Composite Index (CI): A composite of multiple economic indicators. The leading CI signals the near‑term outlook, the coincident CI reflects the current state, and the lagging CI confirms past developments.
Financial repression: A condition of negative real interest rates (nominal rates < inflation). It enables lower real government borrowing costs and reduces the real value of debt, but erodes savers’ purchasing power.
This column was automatically generated by AI integrating Ministry of Finance JGB interest rate data, tax revenue data, Bank of Japan statistics, and e-Stat public statistics as a fiscal analysis resource. This is not a recommendation to buy or sell any financial instruments or government bonds. Please make investment decisions at your own responsibility and consult professionals as needed.