Morgan Stanley: Japan's 10-year government bond yield is expected to decline by the end of the year.

In a report, Morgan Stanley's interest rate strategists stated that as the market focus shifts from inflation to growth, the midsection of the Japanese government bond yield curve is expected to perform well. They predict that by the fourth quarter of 2026, the yield on the 10-year Japanese government bond will fall to 2.1%; according to data from the London Stock Exchange Group, the current yield is 2.74%. They believe that the long end of the yield curve will continue to lag behind due to a lack of domestic investor demand. They stated that the current market pricing reflects a tighter stance than Morgan Stanley's subjective probability-weighted policy path and survey-based forecasts for the Bank of Japan, indicating a significant inflation risk premium. "We expect this premium to dissipate by the fourth quarter of 2026, bringing the yield on the 10-year Japanese government bond down to 2.10%, and then gradually rise to 2.30% by the fourth quarter of 2027 as oil prices stabilize and the Bank of Japan resumes hiking rates."