JGBs extend selloff as hawkish BOJ board member calls for faster-paced rate hikes

TOKYO: Japanese government bonds extended a selloff on Wednesday as the central bank’s hawkish board member called for faster-paced interest rate hikes.

The 5-year bond yield jumped 4 basis points to a record high of 2.295%, and the 2-year JGB yield also rose 4 bps to 1.84%, its highest since April 1995.

The Bank of Japan must conduct interest rate hikes nimbly after gauging domestic financial conditions and examining overseas developments, board member Hajime Takata said on Wednesday.

“His messages indicated that the BOJ will raise its policy rates this month for certain, and it will keep raising rates at an unconventional pace,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Takata was the sole dissenter to the BOJ’s decision in July to keep short-term interest rates steady at 1%, calling for a rate hike to 1.25% to respond to inflationary risks from external demand shocks.

JGB yields are on the rise along with their global peers, reflecting investor angst over inflation and government debt levels that stand to inflict fresh pain on consumers and businesses.

Japan’s 10-year yield rose to 3.01% on Wednesday, after hitting 3% for the first time since 1996 in the previous session.

Yields move inversely to bond prices. Under Prime Minister Sanae Takaichi’s aggressive spending plans, Japan may boost sales of two- and five-year bonds, and that adds upward pressure on the 10-year bond yield, said Takashi Fujiwara, chief fund manager at Resona Asset Management’s fixed income investment division.

Budget requests from ministries and agencies for fiscal 2027 are expected to reach 140 trillion yen ($874 billion), far beyond last year’s all-time high of 122.3 trillion yen.

Inadome expects the selloff of JGBs to continue throughout the year, with the 10-year bond yield rising to 3.2% in October, meaning the yield would double since Takaichi became prime minister in October last year.

The 30-year yield rose 1.5 bps to 4.195%, close to a record high of 4.2% marked in May, ahead of an auction for the bond with the same maturity in the next session.