Suppose you have 1 million yen that you might use in three years, and you are thinking about holding part of it in government bonds.
Looking at the information, you see “Government Bonds 3.1%” and “Individual Government Bonds 2.05%.” It is natural to think that if they are both government bonds, the one with the higher interest rate is better.
However, depending on how interest rates move, if you sell the 3.1% government bond after three years, your 1 million yen investment could be worth about 945,000 yen.
In this article, we will look at the 1 million yen held by Mr. Tanaka, a 65-year-old (a fictional character), to understand the meaning of terms in the Ministry of Finance’s offering guide, the differences when cashing out early, how they move when interest rates rise, and how to check based on when you plan to use your money.
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Reading the numbers in the guide
The guide for the October 2026 offering states the following (figures are pre-tax, Ministry of Finance).
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Government Bonds (New Window Sales 10-year): Coupon rate 3.1% / Offering price 100.39 yen per 100 yen face value / Yield to maturity 3.048%
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Individual Government Bonds (Floating 10-year): 2.05% for the first six months
There are two different numbers for the same government bond: 3.1% and 3.048%.
What is the coupon rate?
This is the figure indicating how much interest is paid annually relative to the face value. The face value is the amount returned at maturity. For 1 million yen, the pre-tax interest is 31,000 yen per year, paid every six months.
What does an offering price of 100.39 yen mean?
It means you are buying a bond that will return 100 yen at maturity for 100.39 yen. For a face value of 1 million yen, the purchase price is 1,003,900 yen. The amount returned at maturity is 1 million yen, and the extra 3,900 yen paid is not included in the maturity amount.
In other words, government bonds also have a “purchase price.”
What is the yield to maturity?
This is a figure calculated on an annual basis that includes not only interest but also the difference between the purchase price and the amount returned at maturity. In this example, it is 3.048%, which is slightly lower than the 3.1% coupon rate.
A figure for looking at interest and a figure that includes the purchase price. The reason two are listed side-by-side is that they are looking at different things.
However, the yield to maturity is the figure when held until maturity. For money that you might use for repairs or a car in three years, how much can you get back at that time?
What is the difference when you convert them back to cash early?
The Ministry of Finance’s “Comparison of Product Characteristics between Individual Government Bonds and New Window-Sold Government Bonds” states the following:
This difference lies in the mechanism for converting them back to cash early.
3.1% Government Bonds (New Window-Sold Government Bonds)
These are the same as government bonds traded on the market. When converting to cash early, you sell them through a financial institution at the current price. The price can go up or down. The Ministry of Finance explains that there are cases where they cannot be sold if there are no buyers.
Individual Government Bonds
The government will buy them back at face value. However, there are conditions regarding when they can be used; in principle, they cannot be redeemed early during the first year. After one year has passed, an amount equivalent to the last two interest payments (before tax) multiplied by 0.79685 will be deducted.
If you interpret it as “If it’s a government bond, the government will buy it back for the same amount even if it’s early,” you will end up confusing the two.
Note that even for 3.1% government bonds, **if you hold them until maturity, they will return at the face value of 1 million yen.** Price fluctuations only matter when you sell before maturity.
Why does the price of government bonds fall when interest rates rise?
From here on, we will look at the case where interest rates move using hypothetical numbers.
Suppose that in three years, the interest rate on newly purchased government bonds becomes 4%. However, the government bonds Mr. Tanaka holds still have an interest rate of 3.1%.
From the buyer’s perspective, if the price is the same, they will look for the one with higher interest. Therefore, the existing 3.1% government bonds cannot be sold unless the price is lowered.
When the interest rate on new government bonds rises, the price of government bonds you already hold falls.
This is the nature of this relationship.
Calculation for selling after 3 years
This calculation assumes purchasing a face value of 1 million yen for 1,003,900 yen and selling it after 3 years (with 7 years remaining until maturity).
| Market yield after 3 years | Sale proceeds | Difference from purchase price | Increase/decrease including 3 years of after-tax interest |
|—|—|—|—|
| 3.1% | 1,000,000 yen | -3,900 yen | +approx. 70,200 yen |
| 4% | approx. 945,500 yen | -approx. 58,400 yen | +approx. 15,700 yen |
| 5% | approx. 888,900 yen | -approx. 115,000 yen | -approx. 40,900 yen |
| 2% | approx. 1,071,500 yen | +approx. 67,600 yen | +approx. 141,700 yen |
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After-tax interest for 3 years: approx. 74,100 yen (tax rate 20.315%)
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Increase/decrease = Sale proceeds + Interest received – Purchase price
In the 4% example, the selling price is about 945,500 yen, which is less than 1 million yen. However, since you have been receiving interest during that time, adding the 3 years of interest results in a gain of about 15,700 yen. We look at both the selling price and the interest received together.
In the 5% example, even adding 3 years of interest does not reach the purchase amount. Conversely, when interest rates fall, the selling price of a 3.1% government bond tends to rise.
In the case of individual government bonds (floating 10-year)
For floating 10-year bonds, the interest rate is reviewed every six months. The rate is determined by the formula: base rate × 0.66 (with a lower limit of 0.05%). If interest rates rise, this type sees an increase in interest.
If 2.05% continues for 3 years and you redeem it early after 3 years, the result is as follows:
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Interest after tax for 3 years: approx. 49,000 yen
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Early redemption adjustment: approx. 16,300 yen (deducted)
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Increase amount: approx. 32,700 yen
Although the initial interest rate of 3.1% was higher, in this example, the result of selling early was reversed. However, the 2.05% for individuals is the interest rate for the first six months. This comparison is an example of what happens if that rate continues; the amount received during that period is not determined solely by the market interest rate after 3 years.
Even with the same interest rate news, one affects the ‘selling price’ while the other affects the ‘interest received’.
Can you wait until maturity for repairs or a car?
Let’s assume Mr. Tanaka decides to renovate his house in 3 years. Can he say, ‘There are still 7 years left until maturity, so I can wait for the repairs’?
There are also specific times when you want to replace a car. The day a government bond matures is not necessarily the same as the day you need money for your daily life.
‘I have no plans to use it now’ and ‘I can hold it for 10 years without using it’ are slightly different. For money for repairs or a car where the date is not yet set, you should consider the possibility that the schedule might move up.
The dividing line is when you will use the money.
Let’s apply this to your own money
使い道 ［家の修繕・車など ］
使う時期 ［ 年後／まだ決まっていない ］
予定が早まったとき、満期まで待てる？ ［ ］
持っている国債の名前に「個人向け」の言葉はある？
途中で手放すときは「市場で売る」か「国が買い取る」かIf you already own government bonds, you can check the name of the bonds on your financial institution’s transaction balance report or similar documents. The way the name is displayed varies depending on the financial institution and the document. Does it include the word ‘for individuals’? Use that name as a clue to check whether it is a mechanism where the government buys it back or if it is something you sell at the current market price.
Summary of today
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First: The coupon rate is the interest figure. The yield to maturity is a figure that includes the purchase price and the amount returned at maturity.
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Second: When using them early, 3.1% government bonds are sold on the market, while individual government bonds are bought back by the government. Their movements when interest rates rise are also different.
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Third point: Market government bonds will also return their face value if held until maturity. What you need to confirm is whether this is money you can afford to wait for until maturity.
“When will you need to use this money?” Please look at the guidance provided alongside your own plans.
For those who want to create their own life plan
When and how much will you need? If you want to check this against your family’s life plan, there are free tools available.
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For those who want to create a rough plan first: Central Council for Financial Services Information (Shiruporuto) “Life Plan Simulation: Life Design Diagnosis” (Free)
https://www.shiruporuto.jp/public/data/magazine/sindan/input/
*Please also enter your income (such as pensions). -
For those who want to create a more detailed plan: Life plan software “FP-UNIV” (Free plan available; some features like pension analysis are paid)
https://fp-univ.net
*Our office has no affiliation or referral fee relationship with the company providing this software.
When entering information, please do not input personal data such as your name or account number.
Regarding life plan consultations
“When do you think you will need to use this money?”
“How much of your money can wait until maturity, and how much cannot?”
If you are asking these questions, please make use of the life plan creation consultation services at Kami Money Clinic FP Office.
Consultations are accepted via our official LINE account.
https://lin.ee/VbBXxns
For inquiries regarding how to choose products or the procedures themselves, please contact the counter of the financial institution handling them.
References and Sources
・Ministry of Finance “Individual Government Bonds and New Over-the-Counter Government Bonds Currently Open for Subscription”: October 2026 issue of New Over-the-Counter Government Bonds (coupon rate 3.1% per annum, issue price 100.39 yen per 100 yen face value, yield to maturity 3.048% before tax), Individual Government Bonds Floating 10-Year (first six months 2.05% per annum). Interest rates and issue prices change with each offering. Please check the latest information on the Ministry of Finance website
https://www.mof.go.jp/jgbs/individual/kojinmuke/recruitment/index.html
・Ministry of Finance “Comparison of Product Characteristics between Individual Government Bonds and New Over-the-Counter Government Bonds”: Expressions regarding “risk of principal loss/no risk,” mechanism for mid-term redemption
https://www.mof.go.jp/jgbs/individual/kojinmuke/recruitment/comparison/
・Ministry of Finance “Frequently Asked Questions about New Over-the-Counter Government Bonds”: Selling through financial institutions, cases where there are no buyers
https://www.mof.go.jp/jgbs/individual/kojinmuke/shinmadohan/qa/
・National Tax Agency Tax Answer No. 1310: Tax rate on interest (20.315%)
・The “amount when sold after 3 years” for market government bonds is an estimate based on the theoretical price of semi-annual compounding, assuming a purchase of 1,000,000 yen face value at 1,003,900 yen, and that market yields become 2%, 3.1%, 4%, or 5% after 3 years (7 years remaining). This is not a future prediction or an actual sale price.
・The “approximately 32,700 yen” for Individual Government Bonds is an example of mid-term redemption after 3 years, assuming the 2.05% interest rate continues for 3 years. The amount received will change depending on how the actual interest rate changes and the timing of redemption.
・The character Tanaka appearing in this article is fictional. All amounts are estimates and rounded for convenience.
Disclaimer
This article is intended for information and financial economic education purposes and does not solicit or recommend investment in specific financial products or opening accounts. It is an explanation applying general mechanisms to life situations. The characters are fictional.
Interest rates, issue prices, and yields to maturity are examples from the Ministry of Finance’s October 2026 offering. For market government bonds, the coupon rate is 3.1% per annum (2.470235% after tax), the issue price is 100.39 yen per 100 yen face value, and the yield to maturity is 3.048% before tax. The 2.05% (1.6335425% after tax) for the 10-year floating-rate Individual Government Bonds is the interest rate for the first six months and is reviewed every six months.
The calculation for market government bonds is an estimate assuming a purchase of 1,000,000 yen face value at 1,003,900 yen and a sale after 3 years (7 years remaining). It uses the theoretical price of semi-annual compounding with market yields of 2%, 3.1%, 4%, and 5%, and does not indicate future predictions or actual sale prices. Amounts are rounded estimates. Payment of accrued interest at the time of purchase and adjustments for the first receipt are excluded from the comparison.
Interest is calculated after tax by applying a tax rate of 20.315%. Taxation on capital gains and transaction fees are not included. The increase or decrease is the total of the amount received from the sale or redemption plus the interest received after tax up to that point, minus the purchase cost. Reinvestment of received interest is not calculated.
The approximately 32,700 yen for Individual Government Bonds is an example of mid-term redemption after 3 years, assuming the 2.05% interest rate continues for 3 years. The amount received will change depending on the actual path of interest rates and the timing of redemption. The amount received from Individual Government Bonds up to that point is not determined solely by the market yield after 3 years.
Market government bonds may experience principal loss or other losses due to price fluctuations when sold before maturity, and there are cases where they cannot be sold if there are no buyers. While they are redeemed at face value upon maturity, the purchase price may differ from the face value. In principle, individual government bonds can be redeemed early after one year has passed since issuance, with an amount equivalent to the last two interest payments (before tax) multiplied by 0.79685 being deducted.
Tax systems, regulations, and product details are based on information available at the time of writing and are subject to change in the future. Please check the official information from the Ministry of Finance or your financial institution for the latest terms and procedures. For detailed conditions regarding free tools, please check the page provided by the tool provider. Please make final decisions at your own responsibility.
This article is published as information from the Kami Money Clinic FP Office and is separate from our activities as a financial instrument intermediary.