FX.co ★ Japan 10-Year Yield Hits 27-Year High

Japan’s 10-year government bond yield rose to around 2.37% on Friday, its highest level since 1999, as an oil-driven inflation shock stemming from the Middle East conflict strengthened expectations of an imminent interest rate hike by the Bank of Japan. Hawkish expectations were further fueled by a sharp depreciation of the yen, which has come under sustained pressure from higher energy costs given Japan’s heavy dependence on oil imports from the region. Last week, the BOJ left its policy rate unchanged but retained a tightening bias, with Governor Ueda keeping open the possibility of a rate hike as early as April. Analysts now see a 25 basis point increase to 1% as likely at the central bank’s April 28 policy meeting. Oil prices remained elevated amid mixed signals from the US and Iran over diplomatic efforts to resolve the conflict.