FX.co ★ Japan 10-Year Yield Retreats as Oil Prices Fall

Japan’s 10-year government bond yield fell to around 2.71% on Monday, retreating from 30-year highs as oil prices declined amid signs that the US and Iran were moving closer to an agreement that could reopen the Strait of Hormuz. A full reopening of this key shipping lane would ease pressure on major Asian economies that are heavily reliant on Middle Eastern oil imports, while lower crude prices would also help temper inflation and reduce concerns over further interest rate hikes.

Data released last week showed that Japan’s core inflation rate slowed to a four-year low in April, easing immediate pressure on the Bank of Japan to tighten monetary policy. Even so, the central bank may still proceed with further rate increases, as the Japanese economy remains relatively resilient, supported in part by robust export performance.

Separately, reports indicated that Prime Minister Sanae Takaichi signaled a willingness to introduce a supplementary budget to help cushion the impact of rising energy costs.