The Zhitong Finance App notes that since the Bank of Japan introduced unprecedented stimulus measures in 2013, the yield on Japan's 10-year sovereign bonds hit a critical psychological level of 1% for the first time. Currently, the market's focus is shifting to how fast this policy will fall back.

The benchmark 10-year Treasury yield rose 2 basis points to its highest level since May 2013. US Treasury yields, including 20-year and 30-year bonds, recently reached their highest level in 10 years, and the inflation rate was higher than the 2% target set by the Bank of Japan for two consecutive years.

The 1% level is critical to the market because it is a reference point for the Bank of Japan's yield curve control policy, which was abolished in March of this year, and negative interest rates were also eliminated. Judging from the trend in the swap market, the possibility that the Bank of Japan will raise interest rates again at the end of July meeting is about 66%, while when the Bank of Japan made a historic policy decision in March, this probability was 14%.

Shoki Omori, chief strategist at Mizuho Securities, said that if interest rate expectations rise, the yield on Japanese government bonds, especially on 10-year treasury bonds, will rise further. The 10-year Treasury yield could rise as high as 1.2% in the next few weeks, he said.

Goldman Sachs Group strategists predict that Japan's 10-year treasury yield will rise to 2% by the end of 2026, as investors expect the Bank of Japan to implement an “extended” austerity cycle.