Benchmark JGB yield at 17-year high on report BOJ may hike rate by year end
By Rocky Swift and Kevin Buckland
Benchmark Japanese government bonds (JGBs) fell on Friday, pushing the benchmark 10-year yield to a nearly 17-year peak, after Bloomberg reported that Bank of Japan (BOJ) policymakers see room to resume interest rate hikes by year-end.
The 10-year JGB yield (JP10YTN=JBTC) jumped to 1.605% for the first time since October 2008, reversing an earlier decline.
The two-year yield (JP2YTN=JBTC), most sensitive to monetary policy expectations, rose 1 basis point (bp) to 0.855%, and the five-year yield (JP5YTN=JBTC) gained 1.5 bps to 1.15%, both hitting the highest since March 28.
Yields move inversely to bond prices.
BOJ policymakers expect to have enough macroeconomic data by year-end to weigh a hike, Bloomberg reported, citing central bank officials.
The BOJ will hold its next policy meeting on July 30-31, though traders generally expect any rate increase will come in October or later.
The headlines woke up a market that had been taking a breather after outsized swings at the start of the week, following an upper house election drubbing for Prime Minister Shigeru Ishiba's coalition last Sunday.
Following an initial dip in yields on relief that the result wasn't worse than opinion polls had indicated, investor worries about a political shift toward looser policy resurfaced amid media reports that Ishiba would soon step down, despite his denial.
Opposition parties made notable gains in the election on campaign pledges of increased spending and consumption tax cuts.
"There will be a fair amount of uncertainty for the time being about the shape of the government and its fiscal policy direction," Noriatsu Tanji, chief bond strategist at Mizuho Securities, said.
"Concerns about fiscal expansion are likely to persist in the market for now."
Longer-term debt, which is more sensitive to fiscal concerns than to policy expectations, shook off the Bloomberg report.
The 20-year yield (JP20YTN=JBTC) lost 2 bps to 2.56%, declining for a second session as investors judged the run-up in yields mid-week had been overdone.
The 30-year yield (JP30YTN=JBTC) sank 3.5 bps to 3.06%, falling for a second day.
