Retail government bonds reach 4 trillion yen in five months as rates rise

2026-08-13

Issuance of retail government bonds is rising at a pace that could set a record. In FY2026, sales totaled about 4 trillion yen in the five months from April to August, 60% above the same period a year earlier. Full-year sales in FY2025 also reached the highest level in 19 years, and historically high interest rates are raising the chance of surpassing the FY2005 record.

Issuance volume on track for a record high

According to the Ministry of Finance, issuance in August totaled 1.0177 trillion yen. Cumulative sales from April to August came to 4.0661 trillion yen, up 66.3% from a year earlier. Retail government bonds come in three types: floating-rate 10-year bonds, whose coupon is reset every six months, and fixed-rate three-year and five-year bonds, whose coupons are locked in at issuance. They can be bought at financial institutions from 10,000 yen. The government guarantees principal and a minimum annual interest rate of 0.05%.

September offering at record levels

With the Bank of Japan having started raising its policy rate, retail government bonds are gaining prominence as an investment vehicle. The Ministry of Finance sets the applicable coupon based on market interest rates. The September issues on sale have all set records, with the floating-rate 10-year bond at 1.87%, the fixed-rate three-year bond at 1.71% and the fixed-rate five-year bond at 2.06%. Kengo Katsurada, senior researcher at the Japan Research Institute, said the rise in rates is making them popular because they are expected to generate more interest income than deposits.

Rule changes to draw in individual investors

As the BOJ scales back bond purchases, yields on newly issued 10-year government bonds are trending higher. There have also been periods when the market has viewed the Finance Ministry's bond auctions as weak, and long-term yields are currently in the upper 2% range. Rising rates increase the government's debt-servicing costs and add to the fiscal burden, so the administration sees households as a new base that can support the stable issuance of government bonds.

The Finance Ministry is exploring ways to make the product more attractive to expand sales. At a study group in May, proposals included inflation-linked bonds and short-term products maturing in less than a year. The Basic Policy on Economic and Fiscal Management and Reform, adopted in July, also stated that the government will seek to expand the domestic investor base by improving the appeal of retail government bonds. Finance Minister Satsuki Katayama said at a July news conference that, as the issuing authority, she wanted to make improvements to the product's appeal and features as soon as possible.

Still a small share of household assets

According to BOJ flow-of-funds statistics, government bonds accounted for less than 1% of household financial assets as of March 2026. Katsurada said product improvements are expected to help establish them as an option for personal asset building.

Meanwhile, lawmakers from both ruling and opposition parties have proposed reducing inheritance tax. Even so, concerns remain that tax breaks would disproportionately benefit wealthy households. As the Sanae Takaichi administration promotes responsible expansionary fiscal policy, markets are wary of the impact on debt issuance and fiscal discipline. Efforts to boost the appeal of retail government bonds are needed, but some see them as unlikely to become the main pillar of measures to ensure stable bond issuance.

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