Japan’s 10-year government bond yield fell to around 2.66% on Tuesday, hovering near a two-week low as investors reassessed the outlook for Bank of Japan (BOJ) monetary policy while closely monitoring developments in the Middle East. Markets are currently assigning roughly a 78% probability to another BOJ interest rate increase later this month, amid a renewed pickup in inflation linked to the Iran-related conflict.
The yen’s continued weakness has reinforced expectations of further tightening, as higher energy costs have pressured the currency and intensified worries about the impact on household spending. Investors are now awaiting comments from BOJ Governor Kazuo Ueda later this week for additional guidance on the central bank’s policy trajectory.
Meanwhile, Tehran has reportedly suspended talks with Washington in response to Israeli strikes in Lebanon, though President Donald Trump stated that negotiations are still ongoing.