Japanese government bond yields rise as Gulf flare-up stokes inflation concerns

TOKYO: Japanese government bond (JGB) yields rose on Monday as inflation concerns and hawkish Bank of Japan (BOJ) signals continued to weigh on sentiment.

The yield on the 10-year JGB climbed 5 basis points (bps) to 2.715%, marking its highest close since May 26. Yields move inversely to bond prices.

Oil prices jumped after an Israeli attack on Beirut over the weekend prompted Iran to direct a salvo of missiles at Israeli targets.

“The prospect of higher inflation will keep yields elevated globally, and concerns about Japan’s fiscal expansion will also persist,” Oxford Economics lead economist Norihiro Yamaguchi said in a report.

Oxford raised its end-2026 forecast for the 10-year JGB yield to 2.8% from 2.5%.

U.S. Treasury yields rose sharply on Friday after a stronger-than-expected jobs report bolstered expectations of a Federal Reserve rate hike.

Domestically, expectations for a BOJ rate hike at its June 15-16 policy meeting have solidified.

Japanese Finance Minister Satsuki Katayama said on Monday that long-term interest rates are determined by various factors and that the government is seeking to conduct appropriate debt management.

Data on Monday showed Japan’s economy lost momentum in the January-March quarter, as the Middle East conflict added to headwinds.

The yield on the 20-year JGB advanced 4 bps to 3.610%, while the 30-year yield added 4.5 bps to 3.935%.

The yield on the 40-year JGB, Japan’s longest tenor, increased 5 bps to 3.805%, set for its highest close since May 28.

The two-year yield, the one most sensitive to BOJ policy rates, edged up 0.5 bp to 1.415%. The five-year yield gained 2 bps to 1.940%.