FX.co ★ Japan 10Y Yield Gains as Yen Hits 40-Year Low

Japan’s 10-year government bond yield rose to around 2.67% on Tuesday, advancing for a second consecutive session as the yen weakened to its lowest level in four decades. The currency’s sharp depreciation bolstered expectations of a faster pace of monetary policy tightening by the Bank of Japan.

Last week, BOJ Governor Kazuo Ueda reiterated that the central bank stands ready to raise interest rates further if economic activity, inflation, and financial conditions develop in line with its projections. The yen has remained under sustained pressure due to the wide interest rate differential between Japan and the United States, where the Federal Reserve is expected to implement multiple rate hikes this year.

Japan also remains vulnerable to potential disruptions in energy supplies because of its heavy dependence on imports from the Middle East. On the data front, Japan’s industrial production increased in May but fell short of market expectations, as ongoing tensions in the Middle East continued to threaten supply chains and keep energy costs elevated.