TOKYO – Japan’s 10-year government bond yield hit a near four-week high on Wednesday amid caution over the likelihood of another interest rate hike by the Bank of Japan’s (BOJ).
The 10-year JGB yield rose 1.5 basis points (bps) to 0.795%, its highest since March 15. The two-year JGB yield, highly sensitive to the BOJ’s policy, rose 1 bp to 0.23%, its highest since March 2011.
“Caution for early rate hike emerged after a report said the BOJ may raise its inflation forecast,” said Yoshiro Sato, economist at Resona Holdings.
Bloomberg News reported, citing people familiar with the matter, that the BOJ will likely consider raising its inflation forecast at a policy meeting later this month after surprisingly strong results from annual wage negotiations.
The five-year yield rose 1.5 basis points to 0.425%, its highest since Nov. 14.
Yusuke Matsuo, senior market economist at Mizuho Securities, said the market reacted to the report as there were no other major catalysts.
“(BOJ Governor Kazuo) Ueda’s view on the outlook has not changed based on his recent comments,” Matsuo said, citing Ueda’s remarks in parliament on Tuesday that Japan’s inflation has not exceeded 2%.
Investors were also cautious ahead of the key U.S. inflation reading, further lifting Japanese yields.
“There is a caution in the market that the U.S. inflation is persistent,” said Resona Holdings’ Sato.
Investors will closely watch the U.S. data due later in the day as they seek direction on the Federal Reserve’s next move in interest rates. The data is expected to show a rise in headline inflation to 3.4% year-on-year, from 3.2% in February.
The 20-year JGB yield rose 2 bps to 1.565% and the 30-year JGB yield rose 2.5 bps to 1.865%.
The 40-year JGB yield rose 3 basis points to 2.175%.
