TOKYO - Japan's two- and 10-year bond yields climbed to near three-decade highs on the ‍first trading day ‍of 2026, as markets braced for further interest rate hikes by ​the Bank of Japan.

The 10-year JGB yield jumped 5.5 basis points (bps) to 2.125% ⁠on Monday, its highest level since February 1999. The two-year JGB yield rose 2.5 ⁠bps to 1.195%, ‌its highest point since August 1996, according to Japan Bond Trading.

"Investors are seeing a risk of the BOJ's terminal rate exceeding a ⁠market consensus of 1.5%, with the yen remaining weak against the U.S. dollar," said Naoya Hasegawa, senior bond strategist at Okasan Securities.

The yen has struggled to regain ground as markets bet the pace of the BOJ's ⁠rate hikes will remain slow.

The ​central bank raised its policy rate to 0.75% from 0.5% last month, but Governor Kazuo Ueda ‍has offered no hints on the timing of further increases.

A weaker yen raises import costs and ​stokes inflation, reinforcing expectations for further interest rate hikes by the BOJ.

"The market is struggling to find the appropriate level of yields. As the yields rose at such a high pace, it is hard to buy the bonds on dips," said Eiichiro Miura, senior general manager of investments at Nissay Asset Management.

The five-year yield rose 5.5 bps to 1.6%, its highest level since June 2007.

The 20-year JGB yield rose 5 bps to 3.305% and the 30-year JGB yield climbed ⁠5 bps to 3.455%.

The government decided to reduce the ‌new issuance of super-long government bonds next fiscal year and hold off on increasing the issuance of benchmark 10-year JGBs, as it tried to ease oversupply ‌concerns.

"The latest ⁠move of the yields is signalling the need for further measures by the government," ⁠Miura said.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips)