Japan Faces Debt Crisis as Bond Yields Surge

Japan is experiencing an acute debt crisis with government debt now exceeding 200 percent of its Gross Domestic Product. After decades of low borrowing costs, yields on 10-year government bonds rose above 2.5 percent in April 2026, marking the first time this has occurred in 29 years.

To combat inflation, the Bank of Japan raised its main interest rate to one percent, the highest level since 1995. This policy shift has increased debt-servicing costs, leading the Ministry of Finance of Japan to forecast that interest payments will climb from ¥10.5 trillion to ¥21.6 trillion by fiscal 2029. These payments could eventually account for 30 percent of total government spending.

In response to the rising rates, Prime Minister Sanae Takaichi reportedly urged Bank of Japan Governor Kazuo Ueda to purchase government bonds to curb long-term interest rates. Simultaneously, Japanese authorities sold U.S. bonds to support the yen against the dollar, contributing to a 19-year high of 5.238 percent for 30-year U.S. Treasury yields in summer 2026. The United States Department of the Treasury intervened by buying yen with dollars to mitigate the resulting market volatility.