Japan 10Y Yield Rises Amid Ceasefire Uncertainty

Japan’s 10-year government bond yield climbed to around 2.4% on Thursday, reversing the previous session’s decline as uncertainty over the US-Iran ceasefire kept investors cautious about inflation risks. A senior Iranian official said elements of the ceasefire proposal had already been breached following fresh Israeli strikes on Lebanon, while Tehran continued to largely block the Strait of Hormuz. On Wednesday, Japanese yields had fallen after the ceasefire announcement, reflecting the country’s sensitivity to Middle East oil supply disruptions. Meanwhile, a former Bank of Japan official suggested the central bank is likely to raise its policy rate this month to avoid lagging in inflation control. Markets are now closely watching for signals from BOJ Governor Kazuo Ueda ahead of the April 28 policy announcement, similar to the guidance he provided in December before the last rate hike.

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.