Japan's short-end bond yields jump as rate-hike bets rise after forex intervention

TOKYO: Japan’s short-dated bond yields rose on Monday as investors increased bets on an early Bank of Japan interest rate hike after Japan and the United States conducted coordinated yen-buying intervention to support the currency.

The five-year yield rose 2.5 bps to a record 2.050%.

The two-year yield, the one most sensitive to BOJ policy, rose 3.5 bps to 1.54%, its highest since May 1995. Yields move inversely to bond prices.

“Japan and the US conducted joint currency intervention, which means Japan is under pressure to support the yen with fundamentals this time, such as with monetary policy,” said Rinto Maruyama, senior strategist of FX and rates at SMBC Nikko Securities.

Japan and the United States conducted coordinated yen-buying intervention and will not hesitate to take further action, Japan’s finance ministry said, confirming a rare bilateral action to halt the yen’s slide to fresh 40-year lows.

A widening rate differential with the US, where the Federal Reserve has dramatically shifted to a more hawkish stance, has been a key factor in the dollar’s rise against the yen.

The BOJ on Friday kept its policy rate steady, but warned for the first time that underlying inflation could exceed its target and said future policy discussions would focus on upside price risks.

“The bond yields did not react to BOJ Governor (Kazuo) Ueda’s comments during his press conference on Friday, which means his comments were short of market expectations for early rate hike as early as September,” Maruyama said.