Japan’s long-term government bond yields hit 34-year high, fueling speculation of early rate hike

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Tokyo Correspondent Seo Hye-jin of The Financial News reported that Japan’s benchmark long-term interest rate, the yield on newly issued 10-year government bonds, climbed to 2.39% on the 30th, the highest level in 34 years. The surge was driven by heavy selling of long-term bonds amid concerns that prolonged instability in the Middle East will push up oil prices, weaken the Japanese yen, and heighten inflation expectations.
\r\nIn the Tokyo bond market, the yield on newly issued 10-year government bonds briefly rose 0.005 percentage points from the previous trading day to 2.39% in morning trading. This is the highest level since February 1992, a 34-year peak. It later eased slightly to 2.38% as short-covering emerged, with investors adjusting their bond holdings.
\r\nExpectations that inflationary pressure in Japan will intensify, due to rising oil prices and a weaker Japanese yen stemming from concerns over a prolonged crisis in the Middle East, have prompted increased selling of long-term bonds. This selling has pushed long-term yields higher.
\r\nMarket participants are also betting that the Bank of Japan (BOJ), the country’s central bank, may move to raise interest rates sooner than previously expected.
\r\nThe BOJ is currently keeping its benchmark interest rate at 0.75%, and had been expected to raise rates once at its monetary policy meeting in June. However, as inflationary pressures have recently intensified, expectations are rapidly spreading in the market that the central bank could hike rates as early as next month.
\r\nSome analysts also argue that a rate hike is necessary to stem the decline of the Japanese yen.
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sjmary@fnnews.com Seo Hye-jin Reporter