Goldman Sachs strategists George Cole and Bill Zu wrote in a report dated last Friday that the yield on Japan's 10-year treasury bonds is expected to rise to 2% by the end of 2026, as the market expects the Bank of Japan to implement a longer tightening cycle.
Goldman Sachs expects the Bank of Japan to raise the policy interest rate to 1.25%-1.5% by 2027, and raise interest rates by 25 basis points every six months starting in October, which will lead to an upward repricing of the treasury bond yield curve.
Goldman Sachs believes that as the Bank of Japan sends a more clear signal to the market that the interest rate hike cycle will be longer, the yield is expected to rise. However, caution about quantitative austerity and the risk of long-term inflation are contained, which may limit the rise in long-term yields, leading to a flattening of the yield curve.
