Japanese government bond yields rose Thursday after reports the ruling LDP plans to issue bridging bonds to fund investment, reviving fiscal concerns alongside growing speculation of a BOJ rate hike in June.Summary:The benchmark 10-year JGB yield rose 3 basis points to 2.72%, nearly reversing the previous session's decline, while the five-year yield rose 2 basis points to 1.950%Prime Minister Takaichi's LDP is planning to issue bridging bonds to finance investments across 17 strategic areas, according to a draft proposal reported by the NikkeiAnalysts warned that fiscal expansion concerns could weigh on the JGB market, with the previous session's rate decline creating conditions for profit-takingBank of Japan Governor Ueda said on Wednesday that temporary energy shocks could become persistent if they feed into wages and expectations, reinforcing June rate hike speculationJapan's service-sector inflation ran at 3% in April and core measures showed persistent price pressure, keeping the inflation outlook tilted upwardThe two-year yield, most sensitive to BOJ policy rates, rose 0.5 basis points to 1.385%Japanese government bond yields climbed on Thursday as reports that Prime Minister Sanae Takaichi's ruling Liberal Democratic Party plans to issue bridging bonds to fund strategic investments rekindled concerns about Japan's already stretched fiscal position, adding to pressure from growing speculation that the Bank of Japan could raise rates at its June meeting.The benchmark 10-year JGB yield rose 3 basis points to 2.72%, nearly unwinding the decline recorded in the previous session. The five-year yield rose 2 basis points to 1.950%, while the two-year yield, the maturity most closely tied to BOJ policy rate expectations, edged up 0.5 basis points to 1.385%.The immediate catalyst was a draft proposal, reported by the Nikkei newspaper, showing the LDP intends to use bridging bonds to finance government investment across 17 strategic areas identified by Takaichi. The proposal raises a question the market has been watching closely: how Japan funds an expansion of public investment without further deteriorating a national balance sheet that analysts have long regarded as one of the most stretched among developed economies. Analysts cautioned that the bridging bond plan could weigh on the market, noting that the relatively sharp yield decline in the prior session had left conditions ripe for profit-taking once fresh fiscal concerns emerged.The fiscal story is compounding an already uncomfortable inflation and policy backdrop. Japan's service-sector inflation ran at 3% in April, and core price measures continue to show persistent upward pressure, a combination that stands in contrast to the temporary energy shock narrative that has dominated discussion elsewhere. Bank of Japan Governor Kazuo Ueda, speaking on Wednesday, reinforced the concern, warning that temporary energy price shocks risk becoming persistent if they feed into wage growth and inflation expectations, language that markets read as laying the groundwork for a rate increase at the BOJ's June meeting.The broader context in global bond markets has provided only partial relief. US Treasury yields edged lower earlier in the week as hopes for progress in US-Iran negotiations briefly eased oil-driven inflation concerns, and euro-zone yields moved in sympathy. Japan, however, is facing a domestic inflation dynamic that does not move in lockstep with the global narrative, and the combination of a fiscally expansionary government and a central bank inching toward tightening is applying pressure to JGBs from both directions at once.For global investors, a sustained rise in Japanese bond yields carries implications beyond the domestic market. Japan remains a major holder of foreign bonds, and a shift in the domestic rate environment that encourages repatriation of capital could have spillover effects on yield markets well beyond Tokyo. -----The combination of fiscal expansion concerns and BOJ rate hike speculation is a particularly uncomfortable mix for JGB holders, applying pressure from both the supply and policy rate sides simultaneously. The bridging bond proposal adds to an already strained fiscal picture and could accelerate the yield climb that has been a persistent theme in Japanese markets this year. With service-sector inflation running at 3% and Ueda reinforcing the second-round effects narrative at Wednesday's speech, the June BOJ meeting is live in a way that will keep the two-year yield sensitive to any further data or commentary. A sustained move higher in JGB yields also carries global spillover implications given Japan's role as a major holder of foreign bonds. This article was written by Eamonn Sheridan at investinglive.com.