FX.co ★ Japan 10-Year Yield Rises on BOJ Rate Hike Bets

Japan’s 10-year government bond yield rose to around 2.76% on Thursday, advancing for a third straight session as expectations for a faster pace of Bank of Japan interest rate hikes intensified. Reports that BOJ officials are open to accelerating policy tightening pushed yields higher across the JGB curve, with swap markets now pricing in roughly an 80% probability of a 25-basis-point hike to 1.25% in October, up from about 70% earlier.

The yen remained near its weakest level against the US dollar in roughly four decades, while climbing oil prices amid escalating US-Iran tensions added to inflation concerns and bolstered expectations that the BOJ will continue normalizing monetary policy. Policymakers have stayed vigilant about upside price risks stemming from a weaker currency and higher energy costs.

At the shorter end of the curve, Japan’s 2-year government bond yield climbed to a 31-year high of 1.49% as investors further recalibrated their outlook for the BOJ’s rate trajectory. Rising US Treasury yields also exerted additional pressure on Japanese government bonds.