FX.co ★ Japan 10Y Yield Falls on US-Iran Deal Optimism

Japan’s 10-year government bond yield fell to around 2.45% on Tuesday, retreating from 28-year highs as oil prices softened amid growing optimism that a US–Iran agreement may eventually be reached. President Donald Trump said Tehran had contacted Washington just hours after the United States initiated a naval blockade of Iranian oil shipments in the Strait of Hormuz. Iranian President Masoud Pezeshkian likewise indicated that Iran is willing to continue peace talks, provided they remain within the framework of international law.

At the same time, Bank of Japan Governor Kazuo Ueda on Monday underscored the need to closely monitor the economic impact of the Iran conflict, cautioning that higher oil prices could dampen Japan’s growth outlook. In interest-rate markets, the implied probability of a BOJ rate hike later this month has fallen to about 40%, down from nearly 60% a week earlier.