Global Market: BOJ rate hike bets lift short-term JGB yields to multi-decade highs

Japanese government bond (JGB) yields at the short end of the curve climbed to their highest level in more than three decades on Thursday, as investors increased bets that the Bank of Japan (BOJ) will raise interest rates on Friday following the U.S. Federal Reserve's latest policy tightening, Reuters reported.

The 2-year JGB yield rose 2 basis points to 1.865%, its highest level since April 1995. The move was supported by higher equivalent U.S. Treasury yields after the Federal Reserve delivered a hawkish policy signal and indicated that another rate increase could come later this year.

The BOJ is widely expected to raise its policy rate by 25 basis points to 1.25% on Friday. Market pricing also points to expectations of further quarterly increases, potentially taking the key rate to around 2% over the next year.


Investors will closely assess the BOJ's guidance on the pace of further monetary policy normalisation, particularly given the potential impact on the Japanese yen. Reuters reported that the Fed's hawkish stance triggered a sharp rebound in the dollar-yen exchange rate overnight.

Meanwhile, longer-dated JGB yields moved lower as falling crude oil prices eased concerns about inflation. The resulting moves across maturities led to a so-called twist flattening of the yield curve.

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The 40-year JGB yield fell 5 basis points to 4.115%, while the 20-year yield declined 1.5 basis points to 3.84%. The 30-year JGB had not traded as of 0409 GMT.

The benchmark 10-year JGB yield edged down 0.5 basis points to 2.99%, while the 5-year yield rose 1.5 basis points to 2.295%.

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The contrasting moves in short- and long-term yields underscore the market's focus on the BOJ's near-term rate path, while easing oil prices have moderated inflation concerns at the longer end of the curve.

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