Japan 10Y Yield Slips as BOJ Outlook Mulled

Japan’s 10-year government bond yield slipped to around 2.4% on Monday, extending last week’s decline as investors continued to assess the Bank of Japan’s monetary policy trajectory. Markets remain divided on whether the central bank will raise interest rates later this month, with Governor Kazuo Ueda avoiding any firm signal on an April hike. However, the BOJ is widely expected to upgrade its inflation forecasts at this month’s meeting, reflecting persistently elevated energy costs. Separately, the IMF said the BOJ could look through inflation driven by the Iran conflict, noting that its impact on underlying price pressures is likely to remain limited and should not disrupt the central bank’s gradual tightening path. Meanwhile, US-Iran tensions escalated over the weekend, with the US seizing an Iranian-flagged cargo vessel in the Gulf of Oman, while Tehran reversed plans to reopen the Strait of Hormuz and said it would not take part in a second round of negotiations.

Japan’s 10-year government bond yield hovered around 2.41% on Friday, moving sideways for a third straight session as Bank of Japan Governor Kazuo Ueda offered no clear guidance on interest rates ahead of the central bank’s upcoming policy decision. Ueda highlighted the difficult policy balance between upside risks to inflation and downside risks to economic growth. Ahead of the previous two rate hikes, Ueda had provided clearer signals to prepare markets, and investors had been watching for a similar cue before geopolitical tensions in the Middle East escalated. Still, the BOJ is expected to raise its inflation forecasts at this month’s meeting, reflecting higher energy prices. Separately, the IMF said the BOJ could look through inflation stemming from the Iran conflict, arguing that its impact on underlying price pressures is likely to remain limited and should not derail the central bank’s gradual tightening path.

Japan’s 10-year government bond yield steadied around 2.42% on Thursday as uncertainty persisted over the Bank of Japan’s monetary policy outlook. The central bank is reportedly considering lifting its inflation forecast at this month’s policy meeting to reflect higher energy costs, though it is still expected to keep rates unchanged. Earlier this week, Governor Kazuo Ueda stressed the need to closely monitor the economic impact of the Iran conflict, warning that higher oil prices could dampen Japan’s growth outlook. Meanwhile, IMF said the BOJ could look through inflation driven by the Iran conflict, arguing that its impact on underlying price pressures is likely to remain limited and should not disrupt the central bank’s gradual tightening trajectory. On the geopolitical front, reports suggested Washington and Tehran are considering extending their two-week ceasefire to allow more time for negotiations, even as the Strait of Hormuz remains effectively closed under a dual blockade.