Short-term JGB yields set for weekly gain as bets solidify for BOJ rate hike

TOKYO: Japanese government bonds (JGBs) held steady on Friday, while short-term yields were poised for a weekly advance as market bets solidified around policy tightening by the central bank.  Here are a few details:

The benchmark 10-year JGB yield fell 1 basis point (bp) to 2.660%.

Yields move inversely to bond prices.

The two-year yield, the one most sensitive to Bank of Japan policy rates, eased 1 bp to 1.405%, still poised for a 4-bp rise for the week. The five-year yield slid 1 bp to 1.920%.

A speech by Bank of Japan Governor Kazuo Ueda on Wednesday indicated he was ready to raise the bank’s key interest rate, with markets now reflecting an 80% probability of a hike at the June 15-16 policy meeting.

Recent remarks from BOJ officials highlighted the risk that energy shocks caused by the Iran war could become persistent through wages and expectations.

“A rate hike at the June meeting is now largely priced in,” Sony Financial Group senior economist Takayuki Miyajima said in a note.

“Market attention has shifted to the pace of future rate hikes, and uncertainty surrounding monetary policy is perceived as a source of upward pressure on long-term interest rates.”

Japan’s real wages climbed 1.9% year-on-year in April, data showed on Friday, marking a fourth consecutive monthly gain.

Over the past month, JGB yields have surged to multi-decade highs on inflation worries and fiscal concerns.

The yield on the 20-year JGB held steady at 3.575%.

The yield on the 30-year JGB added 1 bp to 3.890%, marking its third consecutive daily gain. The yield on the 40-year JGB, Japan’s longest tenor, was unchanged at 3.750%. ‑Reuters