Japan yields edge to 2008 high ahead of LDP leadership vote

TOKYO: The yield on Japan’s newly issued 10-year government bond ticked to a 17-year high on Friday in an otherwise subdued session as markets braced for a weekend leadership race that’s likely to determine the country’s next prime minister.

Meanwhile, Bank of Japan Governor Kazuo Ueda offered little steer on the chances of an interest rate hike at the end of this month as he talked about risks from a US labour market slowdown and global tariffs in a cautious Friday speech.

The new 10-year note yielded 1.67%, a level last seen in July 2008.

The five-year JGB yield was flat at 1.235%, matching the 17-year peak touched twice in the past two weeks.

The two-year JGB, which is especially sensitive to monetary policy expectations, had yet to trade as of 0450 GMT.

Traders currently lay 37% odds on a quarter-point rate hike on October 30, according to LSEG data.

Ueda’s speech was “not suggestive of a rate hike in October,” Morgan Stanley MUFG Securities economists wrote in a client note. “Ueda pointed out three key checkpoints” - developments in overseas economies, tariff effects on corporate behaviour in Japan, and trends in food prices - and “it is unlikely that all three of these points will be cleared by the October meeting,” they said.

Meanwhile, the election of a new party president for the ruling Liberal Democratic Party on Saturday is largely a two-horse race between Farm Minister Shinjiro Koizumi, seen as the continuity candidate, and Sanae Takaichi, known as a fiscal and monetary dove.

Fiscal worries flared after the LDP was clobbered in recent upper house elections by opposition parties pledging VAT cuts and other spending measures.

That sent 30-year JGB yields soaring to record highs at 3.285% a month ago.

Markets have calmed somewhat since then, and the 30-year yield declined 1.5 basis points (bps) on Friday to stand at 3.155%.

The 20-year yield lost 1 bp to 2.61%.