The benchmark 10-year Japanese Government Bond yield climbed to a 30-year high on Thursday. The move came as rising oil prices renewed inflation concerns, while investors remained cautious about Japan’s fiscal outlook.
Bond yields move in the opposite direction to bond prices.
10-Year JGB Yield Reaches Highest Level Since 1996
The 10-year JGB yield rose 1.5 basis points to 2.880%.
This marked its highest level since September 1996, highlighting growing pressure in Japan’s government bond market.
Shorter-Term Yields Also Move Higher
Shorter-term Japanese bond yields also increased.
The two-year yield, which is more sensitive to Bank of Japan interest-rate expectations, rose 1 basis point to 1.44%.
The five-year yield also gained 1 basis point, reaching 1.995%.
Oil Prices Add to Inflation Worries
Oil prices jumped after U.S. President Donald Trump said he believed a tentative deal to end the war with Iran was effectively over.
The comments pushed U.S. Treasury yields to a multi-week high and added fresh pressure to global bond markets.
Higher oil prices are a key concern for investors because they can increase inflation risks.
Japan Prepares 5-Year Bond Auction
Japan’s finance ministry is expected to auction around 2.5 trillion yen, or about $15.38 billion, of five-year notes later in the day.
Lisa Mochizuki, an analyst at SMBC Nikko Securities, said higher yields and signs of stronger demand should help support the sale.
She pointed to the sharp narrowing in the negative five-year swap spread since late last month as a sign of improved demand.
Government Spending Plans Pressure JGB Market
JGB yields have been rising since the Japanese government outlined large spending plans in its policy blueprint last month.
The blueprint called on the Bank of Japan to align monetary policy with growth efforts. This raised concerns that the government could pressure the BOJ to keep interest rates low.
Investors worry this could leave the central bank behind the curve if inflation pressures continue to build.
Japan May Revise Monetary Policy Language
The Japanese government is considering changes to the wording on monetary policy in its economic blueprint, according to a draft seen by Reuters.
Any change in language will be closely watched by bond investors, especially as markets remain focused on inflation, fiscal spending and the Bank of Japan’s policy direction.
Fiscal Expansion Raises Inflation Risks
Ataru Okumura, chief rate strategist at SMBC Nikko Securities, said recent JGB yield increases have been driven partly by fiscal concerns.
He noted that one of the main risks of fiscal expansion is that it can increase inflation pressure.
As a result, investors remain alert to whether Japan’s spending plans could push yields even higher.
