FX.co ★ Japan 10-Year Yield Rises on Hot Inflation Data

Japan's 10-year government bond yield surpassed 1.42% on Friday, halting a two-day decline. This shift followed the announcement of core inflation figures that rose for the third consecutive month, reaching 3.7% in May—the highest level since January 2023. The unexpected inflation surge has bolstered expectations that the Bank of Japan (BOJ) might persist in tightening its monetary policy to combat ongoing inflationary challenges. Earlier in the week, the BOJ maintained its benchmark interest rate at 0.5%, yet acknowledged that companies continue to pass on wage hikes to consumers, thus sustaining elevated core inflation levels. Governor Kazuo Ueda reiterated the bank's reliance on data to guide policy decisions, hinting at the possibility of further interest rate increases should inflation remain stubbornly high. Additionally, the BOJ announced intentions to begin gradually reducing its balance sheet starting next year, reflecting a cautious strategy towards normalizing monetary policy.