Japan 10Y Yield Falls for Second Session

Japan’s 10-year government bond yield fell to around 2.25% on Wednesday, declining for a second straight session as oil prices retreated on hopes for a Middle East ceasefire, easing pressure on the country’s import-dependent economy. The move came amid reports that the US was pursuing diplomatic efforts to end the war with Iran, though investor skepticism persisted after Tehran denied engaging in any negotiations with Washington. Meanwhile, data released earlier this week showed Japan’s core inflation rose 1.6% in February, marking the slowest increase since March 2022 as government measures helped ease living costs. Last week, the Bank of Japan kept its policy rate unchanged but maintained a tightening bias to counter inflationary pressures stemming from elevated oil prices.

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.