TOKYO: Japan’s two-year government bond yield rose on Thursday, as investors braced for a further interest rate hikes after the Bank of Japan (BOJ) ended its negative rate policy this week.

The two-year JGB yield, highly sensitive to the BOJ’s new rate policy, rose 1.5 basis points (bps) to 0.185%.

The BOJ on Tuesday ended eight years of negative interest rates and other remnants of its unorthodox policy, ushering in a new era of monetary policy.

“The market has priced in the further interest rate hikes in the future,” Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said.

Under the new policy, the BOJ set the overnight call rate as its new policy rate and decided to guide it in a range of 0-0.1% partly by paying 0.1% interest to deposits at the central bank.

Futures contracts pegged to the BOJ’s overnight call rate maturing in June were last quoted at 99.9275, implying the overnight call rate will be at 0.0725%.

Those maturing in December indicate the overnight call would be at 0.185%. The call rate was quoted at -0.001% on Thursday.

Japan’s 10-year JGB yield rises ahead of BOJ policy decision

The 10-year JGB yield rose 0.5 basis point to 0.730%, while prices on the five-year JGBs have not been not been set yet.

The yields on longer-ended notes fell, with the 20-year JGB yield falling 1 bp to 1.485%. The 30-year JGB yield fell 1.5 bps to 1.785%.

The 40-year JGB yield fell 1.5 bps to 2.040%.