Global Market: Japanese bond yields retreat after BOJ deputy governor signals no clear rate-hike timing

Japanese government bond yields retreated from session highs on Thursday after Bank of Japan Deputy Governor Ryozo Himino stopped short of indicating when the central bank could next raise interest rates, while emphasising the need for timely policy adjustments, Reuters reported.

In a closely watched speech, Himino said policymakers should conduct in-depth deliberations on price pressures at every policy meeting. His remarks reinforced expectations that the BOJ remains on a path towards further monetary tightening, but offered no clear signal that a rate hike would come at the central bank’s September meeting.

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According to Reuters, investors have increasingly positioned for a faster pace of rate hikes following joint Japanese-US efforts in July to support the yen. The currency’s weakness and persistent inflation pressures have strengthened expectations that the BOJ may continue moving away from its ultra-loose monetary policy.

Those expectations have pushed Japanese government bond yields sharply higher. The two-year JGB yield, which is particularly sensitive to changes in the BOJ’s policy rate, briefly climbed to 1.70% on Thursday, its highest level since 1995, before turning flat at 1.685%.

The five-year JGB yield was last up 1 basis point at 2.155%, easing from an earlier session high of 2.165%. Bond yields move inversely to prices.

The yen also weakened after the speech, trading at around 159.395 per dollar, compared with a session high of 158.885.

Reuters reported that traders who had positioned themselves for more hawkish comments from Himino moved to cover short positions in Japanese government bonds after the speech, helping push yields lower from their intraday peaks.

Markets await Ueda’s next signals

The focus now turns to BOJ Governor Kazuo Ueda, who is scheduled to attend next week’s G20 gathering of finance leaders in Asheville, North Carolina.

Investors will closely monitor Ueda’s comments for further clues about the timing and pace of future rate increases. Any indication that the BOJ is becoming more confident about underlying inflation and wage growth could reinforce expectations for another hike.

For now, Himino’s remarks appear to have left the market’s broad outlook largely intact. The BOJ continues to signal that further normalisation remains possible while avoiding a firm commitment on the timing of its next move.