Japanese Government Bond yields are rising, with the 20-year yield now above 2.685%, the highest since 1999. The 30-year yield has also increased to 3.28%. This pattern is happening worldwide, where yields are climbing globally. Lenders in fixed interest are looking for higher returns on long-term loans to governments. This rise in yields has caused stock market fluctuations, but trading continues. The significant increase in JGB yields, especially with the 20-year bond reaching its highest point since 1999, indicates a clear opportunity. We should keep short positions on JGB futures, as signals from the Bank of Japan’s meeting in August 2025 suggest this trend will continue. The market is starting to price in the end of the era of ultra-low rates that have characterized the Japanese economy for many years. The Nikkei Volatility Index is now around 28, a big rise from the low 20s earlier this year, making options premiums more expensive. This situation encourages us to sell covered calls on existing long stock positions to benefit from these high premiums. The fact that buyers are still entering the market during dips shows it is not in a complete panic, making premium-selling strategies appealing right now. In the currency market, particularly the yen against the dollar, we need a careful strategy. While rising JGB yields support the yen, the increase in U.S. Treasury yields to about 5.1% is limiting the yen’s strength. Considering the extreme yen weakness from 2022 to 2024, the narrowing yield gap suggests that purchasing yen call options could become profitable if JGB yields keep rising faster than U.S. yields. This situation resembles the shifts in the global bond market we noticed in 2022 when central banks aggressively fought inflation. The key point is that government bond yields are now a major factor affecting risk across all asset classes. We should use index puts as a hedge for our portfolios, as ongoing stock buying may not persist if bond yields keep climbing.

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