Japan’s 10-year government bond yield slipped to around 2.9% on Friday, falling for a second straight session and pulling back further from its highest levels since 1996 as the global bond selloff eased. A successful auction of 30-year Japanese government bonds earlier in the week also helped calm market nerves, signaling that investment demand remains solid. Domestic pension funds are reportedly looking to increase their JGB holdings in anticipation that the Bank of Japan will quicken the pace of its rate hikes.
Those expectations have been strengthened by hawkish comments from BOJ officials and growing US pressure on Japan to support the yen through tighter monetary policy. BOJ board member Hajime Takata raised the prospect of larger-than-usual or consecutive rate hikes, while Governor Kazuo Ueda said policymakers must pay closer attention to upside risks to inflation. Markets currently expect the BOJ to deliver a 25-basis-point rate increase this month, followed by another hike in December.