Global Market: Japanese bond yields rise as BOJ hawkish signals fuel rate-hike bets

Japanese government bonds extended their selloff on Wednesday as expectations for faster interest rate hikes from the Bank of Japan put further pressure on bond prices and pushed yields higher, Reuters reported.

The five-year Japanese government bond yield climbed 4 basis points to a record 2.295%, while the two-year yield also rose 4 basis points to 1.84%, its highest level since April 1995.

According to Reuters, BOJ board member Hajime Takata said the central bank needs to conduct rate hikes flexibly while assessing domestic financial conditions and developments overseas. Takata was the only member to oppose the BOJ's decision in July to keep its short-term policy rate at 1%, instead arguing for an increase to 1.25% amid concerns over inflationary pressures.


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The latest comments strengthened expectations that the BOJ could resume tightening as early as this month and potentially maintain a faster pace of rate increases. Market strategists said the hawkish signal added to the pressure on Japanese bonds.

The selloff has also been influenced by rising global bond yields, as investors remain concerned about inflation and elevated government debt levels. Higher borrowing costs could increase financial pressure on Japanese consumers and businesses.

Japan's benchmark 10-year government bond yield rose to 3.01% on Wednesday, after briefly reaching 3% in the previous session for the first time since 1996. Bond yields move inversely to prices.

Fiscal concerns are adding another layer of pressure to the JGB market. Prime Minister Sanae Takaichi's plans for increased government spending could lead to higher issuance of two- and five-year bonds, potentially adding further upward pressure across the yield curve.

Budget requests from Japanese ministries and government agencies for fiscal 2027 are expected to total around 140 trillion yen ($874 billion), significantly above the previous record of 122.3 trillion yen.

Investors are therefore watching both monetary policy and government borrowing closely. Strategists expect the JGB selloff to persist, with some forecasting the 10-year yield could reach 3.2% in October.

Longer-dated bonds also remained under pressure. The 30-year JGB yield increased 1.5 basis points to 4.195%, approaching the record high of 4.2% reached in May. The move came ahead of an auction of 30-year government bonds in the following session, adding to investor caution, Reuters reported.

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