TOKYO: Japanese government bond yields advanced on Monday as investors sought to balance the Bank of Japan’s more-flexible yield curve controls against the anticipation of US interest rates staying higher for longer.
The 10-year JGB yield rose 1.5 basis points (bps) to 0.64%, recouping a part of the 2.5 bps slump from Friday.
The yield rose to 0.655% on Thursday, matching a 2014 high reached at the start of the month.
The 20-year JGB yield added 2 bps to 1.365%, while the 30-year yield increased 1.5 bps to 1.645%.
US Federal Reserve policymakers will convene their annual symposium in Jackson Hole, Wyoming from Thursday, with Chairman Jerome Powell delivering a speech.
Markets assume Powell will note the jump in yields at the conference, and the recent run of strong economic data.
The Atlanta Fed’s GDP Now tracker is running at a heady 5.8% for this quarter.
A resilient US economy is stoking expectations that the Fed may need to raise rates again this cycle and hold them at a high level for longer.
Meanwhile, JGB investors continue to test the waters for higher yields after the BOJ last month unexpectedly doubled the de-facto ceiling for the 10-year to 1%.
Despite the increased flexibility for long-term rates, analysts and investors expect the negative short-term interest rate policy to remain unchanged for the foreseeable future.
The yen’s decline to levels that spurred last year the first yen-buying intervention in a generation has some market participants eyeing that as a possible trigger for policy tightening.
“Wage growth (in Japan) might not be strong enough to justify a near-term change in monetary policy, so the current focus should probably be the foreign-exchange rate,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management.
For now though, the 10-year yield is likely to stabilize between around 0.65-0.7%, Kichikawa added. “It’s close to a short-term equilibrium,” he said.
Benchmark 10-year JGB futures were down 0.15 yen at 146.51, as of the midday recess.
The two-year JGB yield was flat at 0.02%. The five-year note had yet to trade.
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