Japan's 2-year bond yield hits 31-year high on bets of faster BOJ rate hikes

TOKYO: Japan’s two-year government bond yield hit a 31-year high on Thursday on growing bets that the Bank of Japan would accelerate the pace of interest rate hikes.

Here are a few details:

The two-year yield, the one most sensitive to BOJ policy rates, rose 5 basis points (bps) to 1.49%, its highest level since May 1995.

The 10-year JGB yield rose 2.5 bps to 2.76% and the five-year JGB yield rose 4 bps to 2%.

The two-year bond yield jumped in the previous session after a Bloomberg News report that BOJ officials were open to raising interest rates at a faster pace than the consensus among economists.

“The prospects that the BOJ may raise its policy rate in October have increased,” said Masahito Sugawara, a senior strategist at Daiwa Securities.

Swap rates indicate about an 80% chance of a 25-bp increase to 1.25% in October, up from around 70% until the previous session, Sugawara said.

The Bloomberg report came after the yen fell to an almost four-decade low against the US dollar on Wednesday.

“The driver of the dollar’s strength is not just the yen’s weakness, but also other factors such as the rise in oil prices and bets for Federal Reserve rate hikes,” said Sugawara.

“Under this circumstance, the currency intervention would now work, therefore, the BOJ might have signalled its intention to raise rates faster to stem the weak yen,” he said.

The JGB yields rose as supply pressure eased after a round of bond auctions for July completed with the 40-year bond sale on Wednesday, which drew stronger demand than the market had expected.