Japan 2-year yields rise to 31-year high as auctions, rate hikes loom

TOKYO: The two-year Japanese government bond (JGB) yield rose to a 31-year high on Monday amid rising bets on central bank rate hikes and an uncertain environment for debt auctions later in the week. Here are a few details:

The two-year yield, the one most sensitive to Bank of Japan policy rates, added 0.5 basis point (bp) to 1.730%, a level not seen since April 1995.

The benchmark 10-year JGB yield climbed 1 bp to 2.935%.

Yields move inversely to bond prices.

The US central bank will “have work to do” if policymakers don’t get the confidence they need that inflation is heading down to 2%, Federal Reserve Chairman Kevin Warsh said on Friday, coming closer than he has to acknowledging interest rate hikes may be needed.

Japan’s Ministry of Finance is due to auction 10-year JGBs on Tuesday and 30-year debt on Thursday.

“If the Fed tightens monetary policy further to curb inflation, the environment for the Bank of Japan and the JGB market will become increasingly challenging,” Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note.

“It is unclear whether investor demand will materialise for this week’s 10-year and 30-year bond auctions.”

Data on Friday showed the Tokyo consumer price index (CPI) rose in August, bolstering the case for a BOJ interest rate hike next month.

The CPI data “really reinforces a more hawkish stance from the BOJ,” ANZ’s head of FX research, Mahjabeen Zaman, said.

“We now expect the BOJ to hike by 25 basis points in the September meeting followed by consecutive moves over the next quarters, taking the terminal rate to 1.75%,” she added.

The 30-year JGB yield rose 1.5 bps to 4.135%. ‑Reuters