Japan’s benchmark 10-year government bond yield climbed to its highest level in nearly three decades on Thursday as rising oil prices reignited inflation concerns while investors remained cautious over the country’s fiscal outlook.
The 10-year Japanese Government Bond (JGB) yield rose 1.5 basis points to 2.88%, its highest level since September 1996. Bond yields move inversely to prices.
The move came after oil prices surged overnight when US President Donald Trump said a tentative agreement to end the conflict with Iran was “over”, lifting US Treasury yields to multi-week highs and fuelling fresh concerns over inflationary pressures.
Shorter-dated government bond yields also advanced, with the two-year yield rising one basis point to 1.44% while the five-year yield increased one basis point to 1.995%.
Investor attention later in the day will turn to Japan’s finance ministry auction of about 2.5 trillion yen (US$15.38 billion) in five-year government notes. SMBC Nikko Securities analyst Lisa Mochizuki said higher yields and improving demand indicators should support the auction.
Concerns over Japan’s fiscal health have also weighed on the bond market since the government unveiled sizeable spending plans in its latest economic policy blueprint last month. The plan called on the Bank of Japan to align monetary policy with economic growth objectives, prompting investor concerns that policymakers could come under pressure to keep interest rates lower despite persistent inflation risks.
A Reuters-obtained draft also showed the Japanese government is considering revising the wording on monetary policy in the economic blueprint.
Commenting on the market, SMBC Nikko Securities chief rate strategist Ataru Okumura said: “In the recent JGB market, yields have been rising on fiscal factors, but one of the biggest problems with fiscal expansion is that it increases inflation risks.”
The Japanese bond market has remained under pressure as investors continue assessing the outlook for inflation, government spending and monetary policy.
