FX.co ★ Japan 10Y Yield Tracks Treasury Yields Higher

Japan’s 10-year government bond yield rose to around 2.93% on Thursday, rebounding from two-week lows and mirroring an uptick in US Treasury yields after investors were disappointed by the US Treasury Department’s bond buyback announcement. Japanese government bonds and US Treasurys generally move in tandem. At the same time, higher oil prices driven by the escalating US-Iran conflict have intensified concerns about inflation and further interest rate hikes, pushing global bond yields higher.

On the domestic front, the Bank of Japan is widely expected to raise its policy rate to 1.25% next week—the highest level in roughly 31 years—after having already increased rates in June. The BOJ is seeking to address the risk that inflation could overshoot expectations amid elevated crude oil prices and a weaker yen. In addition, the Takaichi administration has adopted a more hawkish tone, as policymakers increasingly acknowledge the need to counter excessive yen depreciation.