JGB yields rise as higher oil prices stoke inflation worries

TOKYO: Japanese government bond yields rose on Friday as heightened uncertainty around the Middle East conflict spurred a rise in oil prices and reignited inflation worries.

Benchmark 10-year JGB yields added 3 basis points to 2.875%, following two days of declines after hitting multi-decade highs. Yields rise when prices fall.

The US will impose “the toughest sanctions in history” on Iran, Treasury Secretary Scott Bessent said on Thursday, as Washington ramped up economic threats in a bid to end the nearly six-month-old war. Crude oil jumped about $2 overnight.

“Concerns about instability in the Middle East remain strong,” and higher oil prices “tend to weigh on Japanese bonds,” said Mizuho markets analyst Yuki Matsuda in a client note.

Japanese yields have also been climbing as bets firmed up for the Bank of Japan to raise interest rates at its next policy meeting on September 17-18.

Data on Friday showed core consumer inflation accelerated in July, bolstering the case for tighter policy.

The 2-year JGB yield, which is the tenor most sensitive to monetary policy expectations, added 0.5 bp to 1.675%.

The 5-year yield rose 1.5 bps to 2.115%.

Longer-dated yields, which are more sensitive to inflation expectations, climbed, with the 20-year yield up 5 bps at 3.76% and the 30-year yield 5.5 bps higher at 4.06%.