JGB yields jump as Iran war raises inflation fears

TOKYO: Japanese government bond (JGB) yields jumped on Tuesday on fears that a prolonged US and Israeli war against Iran would boost energy prices and accelerate inflation globally.

The benchmark 10-year JGB yield rose 6 basis points (bps) to 2.12%.

The two-year yield climbed 3.5 bps to 1.25% and the five-year yield rose 5.5 bps to 1.585%.

US Treasury yields shot higher on Monday after military strikes in Iran by the US and Israel, followed by counter-strikes by Tehran across the Middle East, sparked a jump in oil and gas prices and raised fears about escalating inflation.

“The rise in US Treasury yields weighed on JGBs,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.

Japan, which relies heavily on energy imports, would be hit hard by increases in energy prices, raising bets that the Bank of Japan would have to hike interest rates early to counter inflation, some market players say.

On Monday, BOJ Deputy Governor Ryozo Himino said market volatility would not prevent a rate increase, but he gave no hints on timing, saying the decision would depend on the inflation rate stabilising around the central bank’s 2% target.

JGB yields fell sharply in the previous session in part because investors bought safe-haven assets in the wake of the Iran war.

The Japanese government is scheduled to auction about 260 billion yen ($1.65 billion) worth of 10-year bonds later on Tuesday.