Japan 10Y Yield Slips on Soft Inflation Data

Japan’s 10-year government bond yield fell to around 2.27% on Tuesday, retreating from two-month highs as softer-than-expected inflation data reduced expectations for near-term Bank of Japan rate hikes. Core inflation rose 1.6% in February, the smallest increase since March 2022 amid government efforts to ease living costs, though rising energy prices from the Iran war could push inflation higher in coming months. Last week, the BOJ kept its policy rate unchanged but signaled a bias toward tighter policy to counter inflationary pressures from surging oil prices. Meanwhile, investors continued to monitor Middle East developments after President Donald Trump postponed planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran. However, Iran denied engaging in any talks with the US.

Japan’s 10-year government bond yield rose above 2.3% on Monday, marching toward multi-decade highs reached earlier this year as the ongoing Middle East conflict and surging oil prices heightened global inflation risks. Tensions show no signs of easing, with President Donald Trump issuing a 48-hour ultimatum to Iran to reopen the Strait of Hormuz or face strikes on its power plants, while Tehran warned it would target key US and Israeli assets in the region if its energy facilities were hit. Last week, the Bank of Japan kept its policy rate unchanged but signaled a bias toward tighter monetary policy to counter inflationary pressures from rising oil prices. Board member Hajime Takata dissented, recommending a 25 basis point hike to 1% for a second consecutive meeting. BOJ Governor Kazuo Ueda also noted that a rate increase remains possible if the economic slowdown from the Iran conflict proves temporary.

Japan’s 10-year government bond yield rose more than 5 basis points to around 2.26% on Thursday after the Bank of Japan kept its policy rate unchanged in a widely expected move. BOJ board member Hajime Takata dissented for the second meeting in a row, proposing a 25 basis point hike to 1%, citing upside inflation risks. BOJ Governor Kazuo Ueda also indicated that a rate increase remains possible if the economic slowdown from the Iran conflict proves temporary and core inflation persists. Meanwhile, Prime Minister Sanae Takaichi is set to meet US President Donald Trump later today to discuss potential economic and military cooperation, navigating a delicate diplomatic balancing act after Trump initially urged Japan to deploy warships to the Strait of Hormuz before retracting the request. Japanese markets will be closed on Friday for a holiday.