Japan 10-Year Yield Jumps to 27-Year High

Japan’s 10-year government bond yield fell below 2.7% on Wednesday after Bank of Japan Governor Kazuo Ueda highlighted rising inflation risks but refrained from indicating whether an interest rate hike could come at the next policy meeting. Ueda emphasized the importance of monitoring how oil price spikes could affect Japan’s underlying inflation trend, without providing clear guidance on how those dynamics might shape next month’s policy decision. Separately, BOJ Deputy Governor Ryozo Himino reiterated that the central bank remains open to further rate increases, while stressing that the timing and pace would depend on how the Middle East conflict feeds through to Japan’s economy and inflation outlook. At the same time, investors continued to track developments in the Middle East, where tentative signs of progress toward a US-Iran agreement were offset by renewed hostilities that kept uncertainty elevated.

Japan’s 10-year government bond yield rose to around 2.72% on Tuesday after Bank of Japan Deputy Governor Ryozo Himino said the central bank remains committed to further interest-rate hikes, although the timing and pace would depend on how the Middle East conflict affects Japan’s economy and inflation outlook. Recent data also showed that Japan’s core inflation, as measured by a new central bank gauge, accelerated in April and moved well above the 2% target, reinforcing expectations that policymakers could raise rates as soon as next month. Meanwhile, the administration of Prime Minister Sanae Takaichi announced plans to prepare an additional budget aimed at subsidizing fuel costs and easing cost-of-living pressures, contributing to upward pressure on Japanese bond yields. Elsewhere, oil prices moved higher after the US military launched fresh strikes in southern Iran, though President Donald Trump said negotiations with Tehran were continuing to make progress.

Japan’s 10-year government bond yield declined to around 2.71%, pulling back from 30-year highs as oil prices dropped amid signs that the US and Iran were moving closer to a deal that could reopen the Strait of Hormuz. A full reopening of the key waterway would ease pressure on major Asian economies heavily dependent on Middle Eastern oil imports, while lower crude prices also help reduce inflation and interest rate hike concerns. Domestically, data released last week also showed that Japan’s core inflation rate slowed to a four-year low in April, easing pressure on the Bank of Japan to tighten monetary policy in the near term. Still, the central bank could continue raising interest rates as the Japanese economy remains relatively resilient, supported in part by strong export performance. Separately, reports suggested that Prime Minister Sanae Takaichi signaled openness to introducing a supplementary budget to help offset rising energy costs.