A screen displays the Nikkei 225 Stock Average figure at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Monday, Oct. 30, 2023. The expansion of Israel’s ground operations in Gaza added more pressure to global markets as investors prepare for a busy week packed with major central bank decisions and a high-stakes announcement of US bond sales. Photographer: Akio Kon/Bloomberg via Getty Images
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Japanese government bond yields surged Thursday, with the 10-year JGB yield hitting the highest since June 2009, with experts pointing to pressure from a global sell-off in bonds.
The yield on the 10-year JGB rose nearly 8 basis points to cross 1.5% for the first time since 2009, while those on the 30-year bonds also climbed 13 basis points to cross the 2.5% mark for the first time since 2008.
The JGB sell-off was in conjunction with upward pressure on global yields, said Masahiko Loo, senior fixed income strategist at State Street Global Advisors. U.S. 10-year treasury yield climbed 5 basis points to 4.317%.
Nomura’s head of FX strategy for Japan Yujiro Goto told CNBC that the supply-demand was currently not supportive for the JGB market, while also pointing to the sharp rise in European government bond yields.
“Investors now expect the EU and German government to increase fiscal spending, which is adding upward pressure on global bond yields,” he said.
Comments from Bank of Japan Deputy Governor Shinichi Uchida also contributed to the sell-off. Uchida reportedly said the central bank was likely to “raise interest rates at a pace in line with dominant views among financial markets and economists.”
Investors such as Japanese banks were staying on the sidelines with limited risk appetite prior to the end of the financial year in March, in addition to continued expectations of BOJ hiking cycle, said Loo.
Last week, Uchida also reportedly said that the central bank would keep tapering its government bond purchases despite the recent rise in yields.
As the central bank resorted to normalizing its ultra-loose monetary policy last year, it stated it would reduce purchases of JGBs by about 400 billion yen each calendar quarter.
Japan 30 year Treasury
Mitul Kotecha, head of Asia FX and rate strategy at Barclays told CNBC’s “Squawk Box Asia” Thursday the sell-off was fueled partly by the rise in Japan’s inflation: “A lot of people [are] saying that the real inflation is even higher than what the actual measures are showing. So I think part of that is the inflation move that is pushing yields higher.”
Japan’s headline inflation has stayed above the BOJ’s 2% target for 34 straight months, with the most recent figure in January hitting a two-year high of 4%.
The so called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed slightly to 2.5% in January, hitting its highest rate since March 2024.
A higher inflation rate raises expectations of more rate hikes by the BOJ, pushing up bond yields.