Global Market: Japanese bond yields rise as investors weigh inflation, rate-hike risks

Japanese government bond yields rose on Thursday, tracking an overnight increase in US Treasury yields as investors remained focused on inflation risks and the outlook for central bank interest-rate hikes, Reuters reported.

The benchmark 10-year JGB yield climbed 5 basis points to 3.11%, while the 20-year yield rose 4.5 basis points to 3.945%. The 30-year yield increased 6 basis points to 4.2%, and the five-year yield added 1 basis point to 2.385%.

Read more: US stocks: Nasdaq rises while S&P, Dow dip as softer inflation cools Fed hike bets

Yields move inversely to bond prices

US Treasury yields rose overnight despite a softer-than-expected reading of the August Personal Consumption Expenditures price index, which reduced expectations for a Federal Reserve rate hike this month. Revised US gross domestic product data and ADP employment figures pointed to continued resilience in the economy, helping push Treasury yields higher, Reuters reported.

The two-year JGB yield, which is particularly sensitive to Bank of Japan policy expectations, moved in the opposite direction, falling 1 basis point to 1.94%. The decline extended Wednesday's move after a relatively firm auction of two-year debt eased investor concerns.

Read more: Global Market Today: Asian shares mixed as bond yields, oil keep investors on edge

Domestic economic data continued to reinforce expectations for further BOJ policy tightening. The central bank's quarterly Tankan survey showed Japanese business confidence reaching an eight-year high in the July-September quarter, while inflation expectations remained elevated.

A summary of opinions from the BOJ's September policy meeting also indicated that some policymakers saw a need to accelerate monetary tightening or bring interest rates closer to the central bank's desired level sooner. At the meeting, the BOJ raised borrowing costs by 25 basis points to their highest level in 31 years.

However, the summary also showed that a Cabinet Office representative cautioned about the potential economic impact of higher borrowing costs and urged caution over further rate increases.

Reuters reported that markets could interpret such comments as suggesting the BOJ may move slowly in responding to persistent inflation pressures.

This could raise concerns that political pressure may constrain the pace of future rate hikes, potentially increasing inflation-risk premiums and putting upward pressure on longer-term JGB yields, according to Ryutaro Kimura, senior fixed-income strategist at BNP Paribas Asset Management, as reported by Reuters.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)