Japan’s two-year government bond yield rose to 1.070% on Wednesday, its highest level since July 2007, as investors continued to price in expectations of further monetary policy normalization by the Bank of Japan (BOJ).

The sharp increase in short-term yields reflects growing speculation that the BOJ may move toward additional tightening steps amid persistent inflationary pressures and rising wage growth. Markets have been increasingly sensitive to signals from policymakers about the future path of interest rates, particularly as Japan transitions away from years of ultra-loose monetary policy.

Analysts say the move in two-year yields underscores shifting expectations about the BOJ’s stance, with some traders betting that more rate hikes could come in 2025 if inflation remains above the central bank’s 2% target.

The rise in yields has contributed to broader volatility across Japanese bond markets, with investors watching closely for comments from BOJ officials in the coming weeks. The central bank’s upcoming policy meeting is expected to provide further guidance on its outlook for inflation, wage negotiations, and financial conditions.