Bank of America Securities expects that the yield on Japan's 10-year government bonds will rise to 2% by the end of 2026.

According to a report by Bank of America Securities, driven by wage growth, fiscal expansion, and the Bank of Japan's interest rate hikes, it is expected that by the end of 2026, the yield on 10-year Japanese government bonds will rise to 2%. Given the expected net increase in Japanese government bond supply, strategists like Shusuke Yamada suggest maintaining a short position on spreads and preferring steeper yield curves. The report states that the Bank of Japan's continued reduction of quantitative easing and the government's increase in fiscal spending will "push up net supply of Japanese government bonds, while domestic demand - mainly from pension funds - is still insufficient to absorb the new supply." The report states that this imbalance requires the participation of price-sensitive investors, "making long-term contracts particularly susceptible to upward pressure on yields." Although the market generally predicts a slowdown in inflation in Japan next year, strategists recommend buying 10-year Japanese inflation-linked bonds because these bonds can generate positive returns, and continued wage inflation may drive their appreciation.