Japan 10Y Yield Steady After BOJ Decision

Japan’s 10-year government bond yield held near 2.47% on Tuesday after the Bank of Japan left its policy rate unchanged at 0.75% for a fourth consecutive meeting, in line with expectations. The central bank also raised its inflation forecast while lowering growth projections for FY2026 to reflect the economic impact of the Middle East conflict, which is expected to weigh on corporate profits and erode households’ real income. Markets continued to track developments in the Middle East after Iran submitted a new proposal to the US, though disagreements over Tehran’s nuclear program remain a key sticking point. Meanwhile, BOJ Governor Kazuo Ueda is under pressure to reinforce expectations of gradual policy normalization to support the yen, which has weakened amid surging oil prices. Further depreciation of the currency could intensify pressure on the central bank to raise rates, particularly if imported inflation accelerates through exchange-rate effects.

Japan’s 10-year government bond yield rose to around 2.45% on Monday, moving closer to levels not seen in nearly three decades as investors positioned for the upcoming Bank of Japan policy decision, where rates are widely expected to remain unchanged. Still, the central bank may raise its inflation outlook while lowering its growth forecast to account for the economic impact of the Middle East conflict. BOJ Governor Kazuo Ueda faces the challenge of reinforcing the bank’s commitment to gradual policy normalization to provide support for the yen, which has weakened amid surging oil prices linked to the Iran war. Last week’s data showed Japan’s core inflation accelerated for the first time in five months, rising to 1.8% in March from 1.6% in February, while headline inflation edged up to 1.5% from 1.3%.

Japan’s 10-year government bond yield climbed to around 2.44% on Friday, reaching a more than one-week high as inflation data showed renewed upward pressure driven by higher energy costs linked to the Iran conflict. Core inflation accelerated for the first time in five months, rising to 1.8% in March from 1.6% in February, while headline inflation edged up to 1.5% from 1.3%. Despite the increase, both readings remained below the Bank of Japan’s 2% target, offering little justification for an imminent policy shift. The BOJ is widely expected to keep interest rates unchanged at its upcoming meeting as policymakers assess heightened geopolitical uncertainty. Stalled US-Iran peace efforts and ongoing blockades in the Strait of Hormuz continue to amplify inflationary pressures and raise concerns over global growth. Rising energy prices stemming from the Iran conflict have also weighed on Japanese assets, reflecting the country’s heavy reliance on imported oil from the Middle East.