Japan bond yields rise as US-Iran tensions fuel inflation concerns

TOKYO: Japanese government bond (JGB) yields rose on Thursday as escalating US-Iran tensions drove oil prices higher, fuelling inflation concerns and adding to persistent worries about Japan’s fiscal health.  

Here are a few details:

The benchmark 10-year JGB yield rose 0.5 basis point (bp) to 2.690%. Yields move inversely to bond prices.

Oil prices rose for a fourth consecutive session after a new wave of US strikes on Iranian military installations fuelled fears of renewed full-scale conflict and supply disruptions in the Strait of Hormuz.

The 20-year JGB yield climbed 3 bps to 3.565%.

The 30-year yield added 4.5 bps to 3.800%.

The yield on the 40-year JGB, Japan’s longest tenor, rose 6 bps to 3.815%.

More than 90% of Japanese households expect prices to rise over the next year, a Bank of Japan survey showed on Thursday, up from three months earlier and signalling broadening inflationary pressures that could strengthen the case for further interest rate hikes.

The 2-year yield, which is most sensitive to BOJ policy rates, increased 0.5 bp to 1.435%.

The five-year yield rose 1.5 bps to 1.950%.

Japanese Prime Minister Sanae Takaichi said on Wednesday that she saw no link between her government’s draft economic blueprint and a recent rout in the JGB market.

“The government has recently been taking steps to respond to rising interest rates, but there still appears to be some distance between the issues the market is concerned about and the government’s own perception of the situation,” Keisuke Tsuruta, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said in a note.

“Lingering concerns over fiscal expansion and increased JGB issuance are likely to keep market participants cautious,” Tsuruta added.

US Treasury yields declined overnight after data showed the Producer Price Index for final demand dropped 0.3% last month, below the estimate of economists.‑Reuters