In the domestic bond market, the yield on newly issued 10-year Japanese government bonds temporarily reached 2.930%, its highest level in 30 years, while coordinated currency intervention by Japan and the United States strengthened expectations of an early Bank of Japan rate hike. Markets are factoring in faster rate hikes and a higher terminal rate, with some expecting yields to rise above 3%. Thin trading after the Bon holiday is also having an effect.
In the domestic bond market on the 17th, the long-term interest rate, represented by the yield on newly issued 10-year Japanese government bonds, temporarily reached 2.930%, its highest level in 30 years. Coordinated currency intervention by Japan and the United States strengthened expectations of an early Bank of Japan rate hike. Markets are also factoring in faster rate hikes and a higher terminal rate, raising expectations that yields could climb further.
"Trading itself is light because the Bon holiday has just ended. Some selling has emerged as market participants partially adjust their positions ahead of the auction," a foreign-affiliated dealer said, describing market conditions. With trading remaining thin, some market participants say yields could continue to push higher.
The market is focused on views about the timing and scale of the Bank of Japan's rate hikes, with some expecting stronger upward pressure on long-term yields as expectations of faster rate hikes build.