Core Insights - The recent upward trend in Japanese government bond yields is attributed to a steepening yield curve and widening term spreads, with the 30Y yield reaching 3.06% as of May 22, marking a historical high [1][12] - The Japanese economy is emerging from a prolonged deflationary period, with CPI and core CPI recorded at 3.6% and 3.5% respectively in April 2025, exceeding the Bank of Japan's inflation target for over two years [2][16] - The proportion of Japanese government bonds held by the Bank of Japan has slightly decreased, with the central bank holding 557 trillion yen as of March 2025, down 4.6% from November 2023 [3][28] Group 1: Japanese Bond Market Dynamics - The yield curve for Japanese government bonds has steepened, with the 10s30s spread increasing to 167 basis points, driven by comments from Prime Minister Kishida and disappointing bond auction results [1][12][13] - The Bank of Japan's monetary policy is transitioning from negative to positive rates, with expectations of gradual interest rate hikes beginning in 2024 [2][21] - The Japanese government debt-to-GDP ratio has risen significantly, reaching 260% by 2025, raising concerns about long-term economic implications [4][25][26] Group 2: Impact on Asset Classes - The rising yields on Japanese bonds are expected to increase the financial burden on the Japanese government, potentially leading to higher interest payments [5][36] - The narrowing of the Japan-U.S. interest rate differential may lead to a depreciation of the dollar and an appreciation of non-U.S. currencies, impacting global capital flows [5][36] - The outlook for equities suggests that both Japanese and U.S. stocks may face short-term pressure, while the impact on Hong Kong and A-shares is expected to be more indirect [5][36]