Japan 10-Year Yield Holds Firm Ahead of BOJ

Japan’s 10-year government bond yield held around 2.98% on Monday, remaining near its highest level in three decades as investors prepared for the Bank of Japan’s policy meeting this week. The BOJ is widely expected to raise its policy rate to 1.25% on Friday, the highest since April 1995, as the central bank contends with persistent upside risks to prices. Markets are also watching for BOJ guidance on the possibility of another rate hike later this year. Meanwhile, US Treasury Secretary Scott Bessent has repeatedly called on the BOJ to tighten policy more aggressively to prevent excessive yen weakness. Oil prices also extended their gains after Saudi Arabia shut down the critical East-West pipeline that bypasses the Strait of Hormuz, adding to inflation concerns. Japan’s economy depends heavily on oil imports from the Middle East, leaving it particularly exposed to sharp swings in energy prices.

Japan’s 10-year government bond yield climbed to around 2.99% on Friday, moving back toward 30-year highs and tracking a rise in US Treasury yields following a disappointing bond buyback operation from the US government. Data also showed US producer inflation accelerated last month, strengthening expectations for a Federal Reserve rate hike next week. Meanwhile, oil prices continued to rise as the US-Iran war showed no signs of easing, heightening inflation risks. Domestically, data showed Japanese producer inflation increased 7.6% in August, supporting expectations for a Bank of Japan rate hike this month. Sentiment among large manufacturers also improved sharply in Q3, reaching its strongest level since Q4 2021 amid strong government support measures. Earlier this week, BOJ board member Kazuyuki Masu indicated that the central bank will continue tightening policy and scale back monetary support as underlying inflation moves closer to its 2% target.

Japan’s 10-year government bond yield climbed to around 2.93% on Thursday, recovering from two-week lows and tracking a rise in US Treasury yields amid disappointment over the US Treasury Department’s bond buyback announcement. JGBs and Treasurys typically move in tandem. Rising oil prices amid the escalating US-Iran conflict also heightened inflation and interest rate hike concerns, lifting global bond yields. Domestically, the Bank of Japan is widely expected to raise its policy rate to 1.25% next week, the highest level in roughly 31 years, following a rate increase in June. The BOJ aims to address the risk of inflation exceeding expectations amid higher crude oil prices and a weaker yen. The Takaichi administration has also taken a more hawkish stance, as policymakers recognize the need to curb excessive yen weakness.