For decades, Japan has been the poster child of ultra-low interest rates and a flat yield curve. But that era is changing. Over the past year, long-term Japanese Government Bond (JGB) yields have climbed sharply. As of May 21, 2025, the 30-year yield has risen to 3.48%, and the 40-year to 3.54%, up from under 2.4% just a year ago. This steepening curve marks a significant shift in investor expectations. The drivers are clear. Inflation has stayed above the Bank of Japan’s 2% target, and wage growth is gaining momentum most notably during the 2025 Shunto negotiations, which delivered the strongest pay increases in decades. With inflation now embedded, the BOJ has begun stepping away from its ultra-loose stance ending negative interest rates and easing yield curve control.

Markets are responding fast. Investors now demand higher returns to hold long-dated JGBs, pricing in further tightening and fiscal concerns. Globally, the move mirrors rising yields elsewhere, with the U.S. 30-year yield now at 5.00%, driven by resilient growth and “higher-for-longer” Fed policy. The implications are broad. Japan’s debt burden over 260% of GDP will face rising servicing costs. A steeper curve also supports the yen by narrowing rate differentials. And for markets long used to Japan as a low-yield anchor, the shift introduces new dynamics.

In short, Japan’s yield curve is no longer asleep. It’s adjusting to a world of structural inflation, policy normalization and changing capital flows signalling a new chapter for one of the world’s most watched economies.