Japan 10-Year Yield Climbs as Oil Prices Rebound

Japan’s 10-year government bond yield rose to around 2.78% on Friday, snapping a two-session decline as rebounding oil prices, driven by renewed tensions in the Strait of Hormuz, reignited concerns about inflation and the interest rate outlook. Meanwhile, data showed Japan’s household spending fell 3.3% in June, defying expectations for a 1% increase and underscoring continued weakness in consumer demand. On the monetary policy front, investors are looking toward a possible Bank of Japan interest rate hike in September after the central bank left policy settings unchanged last week. Minutes from the July policy meeting showed that several board members expect consumer inflation to accelerate significantly in the second half of the current fiscal year as companies continue implementing broad-based price increases across a wide range of goods.

Japan’s 10-year government bond yield eased to around 2.78% on Thursday, falling for a second consecutive session as lower oil prices following the partial reopening of the Strait of Hormuz reduced concerns over inflation and the outlook for interest rates. Iran and Oman reached an agreement to establish a shipping corridor through the strait, fueling expectations of stronger energy flows from the Middle East. Even so, Japanese bond yields continued to find support from growing expectations that the Bank of Japan will raise interest rates again. Minutes from the July policy meeting revealed that several board members expect consumer inflation to accelerate notably in the second half of the current fiscal year as companies press ahead with broad-based price increases across a wide range of goods. Meanwhile, the latest sale of 30-year Japanese bonds drew firm demand, with the bid-to-cover ratio at Thursday’s auction posting at 3.86 compared with 4.55 at the previous sale.

Japan’s 10-year government bond yield eased to around 2.82% on Wednesday, retreating from a three-week high as reports of an imminent interim agreement between the US and Iran to reopen the Strait of Hormuz sent oil prices sharply lower, easing concerns over inflation and the need for aggressive monetary tightening. Despite the pullback, Japanese bond yields remained supported by growing expectations of another Bank of Japan interest rate hike. Last week, the BOJ left its policy rate unchanged at 1%, although policymakers acknowledged upside inflation risks stemming from demand-driven price pressures linked to the Middle East conflict. Minutes from the July policy meeting also showed that several board members expect consumer inflation to receive a significant boost in the second half of the current fiscal year as companies move ahead with price increases across a broad range of goods.