Government bond rates in Tokyo surged on Tuesday to a level first reached on September 1, driven by a combination of expected short term rates and a rising term premium. The 10 year benchmark JGB yield hit a 30 year peak of 3%, which represents the extra yield investors require to hold long term debt instead of rolling over shorter instruments. Market concerns over inflation and the state of public finances are the primary drivers of this premium.

The Bank of Japan meets Friday, with markets pricing a 25 basis point hike in the policy rate to 1.25%, its highest level in 32 years. Traders anticipate approximately four more quarter point increases following the Friday decision. These moves signal a "higher for longer" shift in borrowing costs for the Japanese economy.