TOKYO: Shorter-duration Japanese government bond (JGB) yields rose on Monday, with the 10-year yield hitting a 15-year high after data revealed that the economy expanded more than expected in the fourth quarter, boosting bets for an interest rate hike.
The 10-year JGB yield rose 2.5 basis points (bps) to 1.375% for the first time since April 2010, while 10-year JGB futures fell 0.35 points to 139.3 yen.
The five-year yield climbed 4.5 bps to a 17-year high of 1.05%. Japan’s gross domestic product expanded at an annualised clip of 2.8% in the October-December quarter, data showed on Monday, beating market estimates of a 1.0% gain, on improved business spending and a surprise increase in consumption.
The data supports bets that the Bank of Japan (BOJ) will continue to raise interest rates as it sets about normalising super-easy monetary policy. Markets have factored in 37 bps of rate hikes for the rest of the year, with another 25-bp increase fully priced in by September.
While market players still appear to anticipate the BOJ’s tightening cycle will top out around 1%, analysts at Morgan Stanley MUFG Securities see a further upward repricing of short-term policy rate expectations for now as policymakers signal a potentially higher neutral rate.
JGB yields hit fresh multi-year highs as rising wages drive BOJ’s rate hike bets
Worries about weakness in the yen as US-Japan rate differentials look set to persist and a move higher in mid- to long-term inflation expectations have also added to the mix.
“We thus see ample scope for an upward repricing of the BOJ’s near-term policy rate trajectory until US growth prospects start to become a greater concern,” Koichi Sugisaki, Japan macro strategist at Morgan Stanley MUFG, said in a research note.
On Monday, the two-year JGB yield, which closely tracks monetary policy expectations, ticked up 1.5 bps to 0.805%.
The 20-year JGB yield was flat at 2.005%, while the 30-year JGB yield fell 0.5 bp to 2.305%.
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