JGB yields flat as market braces for BOJ's September rate hike

TOKYO: Japanese government bond yields were little changed on Thursday, with the five-year bond yield trading near a record high level, as the market braced for the Bank of Japan’s September rate hike.

The five-year yield was unchanged at 2.105%.

It rose to a record high of 2.12% in the previous session.

The two-year yield, most sensitive to Bank of Japan policy rates, was flat at 1.64%, its highest level since May 1999.

Yields move inversely to bond prices.

“The yen has weakened against the dollar in the latest sessions, so the market pricing for the September rate hike remains strong,” said Shuichi Ohsaki, a senior portfolio manager at Meiji Yasuda Asset Management.

“The market now cares about the pace of the BOJ’s rate hike rather than where the terminal rate is.

The September rate would come a hike in June, that’s once every three months,“ said Ohsaki.

The expectations for the September rate hike grew after a joint currency intervention between Japan and the United States at the end of last month lifted the yen’s value, raising bets that the BOJ would have to raise rates soon to keep the yen’s momentum.

The market sees a 95% chance for the BOJ to raise policy rates by 25 basis points to 1.25% by its October policy meeting, while swap rates indicate about a 50% chance for another hike to 1.5% at its December meeting.

The 10-year JGB yield rose 2 bps to 2.87%.

The 30-year yield rose 1 bp to 4.000%, reflecting worries about Japan’s fiscal health.

“The yen may not strengthen even as the BOJ raises policy rates in September, as the market remains concerned about government spending, such as a massive stimulus plan and the food tax cuts, Ohsaki said.

The 20- and 40-year bonds have not been traded as of 0445 GMT.