FX.co ★ Japan 10-Year Yield Falls on Haven Demand

Japan’s 10-year government bond yield fell below 2.1% on Monday, marking a seven-week low as escalating tensions in the Middle East drove demand for safe-haven assets. Over the weekend, the US and Israel conducted military strikes on Iran that resulted in the death of Supreme Leader Ayatollah Ali Khamenei and effectively shut the Strait of Hormuz. Tehran responded by attacking US assets across the region, intensifying fears of a wider conflict.

At the same time, investors continued to reassess the outlook for Bank of Japan monetary policy after the government nominated two reflationist academics to the central bank’s policy board. Domestically, Prime Minister Sanae Takaichi reportedly expressed concern about further interest rate increases during a meeting with BOJ Governor Kazuo Ueda. BOJ officials pushed back, with Ueda emphasizing that policymakers would carefully assess incoming economic data at the March and April meetings before making any decisions, keeping the option of a near-term rate hike on the table.