Japan’s 10-year government bond yield traded around 2%, near its highest level in twenty-seven years, as investor concern mounted over the country’s expansionary fiscal policies. The FY2026 budget, likely exceeding JPY 122 trillion, will require bond issuance above last year’s JPY 28.6 trillion, alongside a JPY 21.3 trillion stimulus aimed at easing household costs, fueling concerns over Japan’s fiscal sustainability. This prompted investors to demand higher premiums for fiscal risk, pushing yields upward. Meanwhile, the Bank of Japan’s recent rate hike to 0.75% signaled a gradual path for further tightening. Former BOJ board member Adachi said the central bank could eventually raise rates to 1.5%, with the next increase expected around July, which would add to funding costs for the government’s large debt. Analysts warn that if yields continue to rise, they could pose a major risk to the economy in 2026, testing investor confidence and the durability of fiscal expansion.