Japanese bond yields climb towards multi-decade highs on inflation, BOJ tightening bets

Japanese government bond yields rose on Monday, with the benchmark 10-year yield moving closer to its highest level in three decades as persistent inflation pressures and expectations of further monetary policy tightening weighed on debt prices, Reuters reported.

The 10-year JGB yield climbed 2 basis points to 3.095%, putting it on course for its highest closing level since August 1996. Bond yields move inversely to prices.

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The two-year JGB yield, which is particularly sensitive to expectations for Bank of Japan policy rates, rose 1.5 basis points to 1.950%, matching a 31-year peak reached last week, Reuters reported.

Data released on Monday showed that a key measure of inflation in Japan's services sector accelerated in August at its fastest annual pace in more than two years. The increase highlighted continued price pressures and added to expectations that the BOJ could face further pressure to raise interest rates, Reuters reported.

Minutes from the BOJ's July policy meeting, also released on Monday, showed policymakers focused on inflation risks, with some members calling for a faster pace of rate increases. The central bank raised its key interest rate to 1.25% this month, taking it to a 31-year high.

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Reuters reported that investors are also watching developments in the JGB supply market, with auctions for 40-year and two-year bonds scheduled for Tuesday and Wednesday, respectively.

The Ministry of Finance is due to hold its regular meeting with primary dealers on Monday afternoon. According to a Reuters report last week, officials may discuss reducing issuance through liquidity-enhancement auctions for bonds with maturities of five to 11 years.

The prospect of changes to bond supply is adding another focus for investors already dealing with elevated yields. Reuters reported that market participants are watching whether the government reduces auction volumes, the size of any reduction and which instruments could be used to offset the impact.

The 30-year JGB yield also rose 1 basis point to 4.165%, underscoring the broad-based pressure across Japan's government bond curve.

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