Japan 10Y Yield Drops on Mideast Ceasefire

Japan’s 10-year government bond yield fell to around 2.35% on Wednesday, retreating from 28-year highs after the US, Iran and Israel agreed to a two-week ceasefire to allow negotiations for a potential agreement to end the war. President Donald Trump delayed planned strikes on Iranian civilian infrastructure for two weeks in what he called a “double-sided ceasefire,” while Iran agreed to reopen the Strait of Hormuz and Israel agreed to halt hostilities during the period. Earlier this week, Japanese yields surged to a near three-decade high as markets assessed the likelihood that the Bank of Japan will raise interest rates this month amid mounting inflation pressures driven by higher energy costs. Additional pressure stemmed from the yen’s weakness, which fuels imported inflation, though the temporary ceasefire in the Middle East and the reopening of Hormuz supported a rebound in the local currency.

Japan’s 10-year government bond yield held around 2.43% on Tuesday, hovering at its highest level in nearly three decades on expectations that the Bank of Japan will raise interest rates this month amid mounting inflation pressures fueled by higher energy costs. Markets now assign over a 70% probability of a BOJ rate hike at its April meeting, with further increases anticipated later in the year. On Friday, the IMF also urged the BOJ to continue gradually raising its policy rate toward a neutral level to contain underlying inflation. Additional pressure stems from the yen’s weakness, which drives imported inflation, while oil prices climbed further as President Donald Trump’s deadline for Iran to reopen the Strait of Hormuz or face intensified attacks on civilian infrastructure approaches.

Japan’s 10-year government bond yield rose above 2.4% on Monday, reaching levels not seen since July 1997, amid rising expectations that the Bank of Japan will tighten policy in response to mounting inflation pressures driven by higher energy prices. Markets now assign more than a 70% probability of a BOJ rate hike this month, with expectations for over two additional increases by year-end. The IMF on Friday also urged the BOJ to continue gradually raising its policy rate toward a neutral level to curb underlying inflation. Additional pressure comes from the yen’s weakness, which fuels imported inflation. Oil prices climbed further after President Donald Trump escalated threats against Iran, though Tehran dismissed the latest ultimatum. Japan remains highly exposed to oil supply disruptions due to its dependence on Middle East imports, prompting releases from emergency reserves and efforts to secure alternative energy sources.