Japan 10-Year Yield Retreats as Oil Prices Fall

Japan’s 10-year government bond yield declined to around 2.71% on Monday, pulling back from 30-year highs as oil prices dropped amid signs that the US and Iran were moving closer to a deal that could reopen the Strait of Hormuz. A full reopening of the key waterway would ease pressure on major Asian economies heavily dependent on Middle Eastern oil imports, while lower crude prices also help reduce inflation and interest rate hike concerns. Data released last week also showed that Japan’s core inflation rate slowed to a four-year low in April, easing pressure on the Bank of Japan to tighten monetary policy in the near term. Still, the central bank could continue raising interest rates as the Japanese economy remains relatively resilient, supported in part by strong export performance. Separately, reports suggested that Prime Minister Sanae Takaichi signaled openness to introducing a supplementary budget to help offset rising energy costs.

Japan’s 10-year government bond yield held around 2.78% on Friday, remaining close to its highest level in roughly 30 years even as softer domestic inflation eased pressure on the Bank of Japan to raise interest rates in the near term. Japan’s core inflation rate slowed to 1.4% in April from 1.8% in March, marking the lowest reading in four years and remaining below the central bank’s 2% target for a third consecutive month. The latest figures also followed reports that Prime Minister Sanae Takaichi signaled openness to a supplementary budget aimed at addressing rising energy costs. Meanwhile, investors continued to assess mixed signals surrounding US-Iran peace negotiations, which kept markets cautious over inflation risks and the outlook for future interest rate hikes.

Japan’s 10-year government bond yield slipped to around 2.77% on Thursday, retreating from 30-year highs as falling oil prices eased pressure on Japan’s import-dependent economy amid growing optimism over a potential peace agreement between the US and Iran. President Donald Trump said the US was in the final stages of negotiations with Iran, fueling expectations that the strategically important Strait of Hormuz could soon reopen. On the domestic front, data showed Japanese exports rose 14.8% in April, surpassing forecasts on the back of strong demand from China, the US, ASEAN nations and the European Union. Earlier data this week also indicated that Japan’s economy expanded more than expected in the first quarter, reinforcing expectations of a near-term interest rate hike from the Bank of Japan. Meanwhile, Japanese government bonds remained under pressure after Prime Minister Sanae Takaichi urged the finance ministry to prepare a supplementary budget to address rising commodity prices.