Japan 10Y Yield Gains as Yen Hits 40-Year Low

Japan's 10-year government bond yield climbed to around 2.67% on Tuesday, gaining for the second straight session as the yen sank to its weakest levels in four decades, supporting expectations for faster Bank of Japan policy tightening. Last week, BOJ Governor Kazuo Ueda reiterated that the central bank remains prepared to raise rates further if economic activity, inflation, and financial conditions evolve as expected. The yen has remained under pressure due to the wide interest rate gap between Japan and the US, with the Federal Reserve expected to deliver multiple rate hikes this year. Japan also remains exposed to potential energy supply disruptions because of its heavy reliance on Middle Eastern imports. On the data front, Japan’s industrial production rose less than expected in May as Middle East tensions continued to pose risks to supply chains and energy costs.

Japan's 10-year government bond yield climbed to around 2.65% on Monday, snapping a three-session decline after data showed retail sales rose 5.3% in May, the strongest pace since November 2023, supported largely by a government stimulus package that boosted consumer spending. A string of solid economic data and hawkish remarks from central bank officials reinforced expectations that the Bank of Japan will continue raising interest rates this year. Last week, BOJ Governor Kazuo Ueda reaffirmed the central bank's commitment to further rate hikes in line with economic, inflation, and financial conditions. A day later, board member Naoki Tamura also backed raising interest rates every few months. The BOJ is scheduled to announce its next policy decision on July 31.

Japan's 10-year government bond yield slipped to around 2.61% on Friday, extending its decline for a third consecutive session despite data showing Tokyo's core inflation accelerated for the first time in eight months, reinforcing expectations that the Bank of Japan will continue raising interest rates. On Wednesday, BOJ Governor Kazuo Ueda reaffirmed his commitment to further rate hikes in line with economic, inflation, and financial conditions. A day later, hawkish board member Naoki Tamura also called for rate increases every few months. The BOJ is set to announce its next policy decision on July 31. Meanwhile, Japanese bond yields tracked lower US Treasury yields after a benign US inflation report reduced expectations for multiple Federal Reserve rate hikes this year. Oil prices also returned to pre-war levels as progress in US-Iran peace efforts eased inflation concerns.