Tokyo, December 3, 2025 :
Japan’s economy flashed fresh signs of momentum as the Services Purchasing Managers’ Index (PMI) strengthened in early December, indicating ongoing expansion in the service sector. At the same time, financial markets reacted sharply as 30-year Japanese government bond (JGB) yields climbed to an unprecedented 3.41%, driven by rising expectations that the Bank of Japan (BOJ) is preparing for multiple rate hikes starting this month.
The surge in yields reflects growing investor consensus that Japan is firmly transitioning away from decades of deflation and ultra-loose monetary policy.
OECD Raises Japan’s 2026 Growth Forecast to 0.9%
Adding to the optimistic indicators, the OECD revised its forecast for Japan’s 2026 economic growth to 0.9%, citing:
Strong private consumption
Robust domestic investment
Rising household spending
Improved business confidence
However, the organization warned that U.S. tariff policies could present headwinds for Japan’s export-driven industries.
BOJ Governor Kazuo Ueda Under Pressure to Normalize Policy
BOJ Governor Kazuo Ueda faces increasing pressure to begin policy normalization as inflation remains above target, wage growth continues, and bond markets demand higher yields.
Analysts note that the market has already priced in:
A December rate hike
Additional tightening in early 2026
A steadier long-term path to exit Japan’s decades-long ultra-easy stance
The rising yields have led to heavier government bond issuance costs, further intensifying debates over Japan’s fiscal sustainability.
Investor Jitters Over Ishiba’s Economic Package
Prime Minister Shigeru Ishiba’s newly announced economic package, aimed at boosting productivity and supporting households, has raised investor concerns due to:
Increased government spending
Higher fiscal deficits
Long-term debt implications
These uncertainties contributed to higher volatility in the bond market throughout the week.
Japan Shifts Definitively Away From Deflation
The combination of rising inflation, higher yields, and strengthening service-sector activity confirms that Japan is undergoing a major structural shift after more than two decades of deflationary stagnation.
Economists say this new phase:
Will influence global bond markets
May trigger further yen appreciation
Could prompt foreign investors to rebalance portfolios
Signals Japan’s transition to a “normal” interest-rate environment
Global Markets React to Japan’s Tightening Signals
International traders are closely watching developments, as Japan’s shift from negative rates and yield-curve control could reshape global capital flows, especially in U.S. and European bond markets.
The combination of a buoyant services sector and rapidly rising yields suggests that Japan is entering a new economic chapter — one defined by growth potential, policy recalibration, and rising financial pressures.
