European Investor
01 Sep 2026, 09:41
Japan Capital Spending Beats Forecast as 10-Year JGB Yield Approaches 3%
Japanese corporate investment strengthened in the second quarter, while government borrowing costs climbed to their highest levels in decades, reinforcing expectations that the Bank of Japan could continue tightening monetary policy.
Capital spending increased 1.6% year over year in Q2, significantly outperforming expectations for a 0.2% decline and accelerating from virtually no growth in the previous quarter.
The stronger investment figures suggest Japanese businesses remain relatively resilient despite geopolitical and energy-price uncertainty. Corporate profits also increased sharply during the quarter, while AI-related investment has been supporting spending in some industries.
Meanwhile, Japan's 10-year government bond auction produced an average yield of 2.995%, up sharply from 2.840% at the previous auction. The highest accepted yield reached 3.011%, as the benchmark 10-year JGB yield touched the psychologically important 3% level for the first time since 1996.
Japanese yields have been rising as investors price in higher inflation risks, fiscal concerns and the possibility of additional Bank of Japan rate hikes. Renewed tensions involving Iran and higher oil prices have added to inflation concerns globally.
The combination of stronger-than-expected business investment and rising bond yields strengthens the case for further BOJ policy normalization. For markets, that could provide support for the yen while keeping upward pressure on Japanese borrowing costs.
Japanese corporate investment strengthened in the second quarter, while government borrowing costs climbed to their highest levels in decades, reinforcing expectations that the Bank of Japan could continue tightening monetary policy.
Capital spending increased 1.6% year over year in Q2, significantly outperforming expectations for a 0.2% decline and accelerating from virtually no growth in the previous quarter.
The stronger investment figures suggest Japanese businesses remain relatively resilient despite geopolitical and energy-price uncertainty. Corporate profits also increased sharply during the quarter, while AI-related investment has been supporting spending in some industries.
Meanwhile, Japan's 10-year government bond auction produced an average yield of 2.995%, up sharply from 2.840% at the previous auction. The highest accepted yield reached 3.011%, as the benchmark 10-year JGB yield touched the psychologically important 3% level for the first time since 1996.
Japanese yields have been rising as investors price in higher inflation risks, fiscal concerns and the possibility of additional Bank of Japan rate hikes. Renewed tensions involving Iran and higher oil prices have added to inflation concerns globally.
The combination of stronger-than-expected business investment and rising bond yields strengthens the case for further BOJ policy normalization. For markets, that could provide support for the yen while keeping upward pressure on Japanese borrowing costs.
