FX.co ★ Japan 10Y Yield Slips on Falling Oil Prices

Japan’s 10-year government bond yield eased to around 2.82% on Wednesday, pulling back from a three-week high. The decline followed reports of an imminent interim agreement between the US and Iran to reopen the Strait of Hormuz, which drove oil prices sharply lower and alleviated concerns over inflation and the need for aggressive monetary tightening.

Even with this retreat, Japanese government bond yields remained underpinned by mounting expectations of another interest rate increase by the Bank of Japan. Last week, the BOJ kept its policy rate unchanged at 1%, but policymakers acknowledged upside risks to inflation arising from demand-driven price pressures linked to the Middle East conflict. Minutes from the July policy meeting further indicated that several board members expect consumer inflation to rise significantly in the second half of the current fiscal year, as companies proceed with price hikes across a broad range of goods.