Yahoo Finance Japan’s Five-Year Yield Rises to Highest Since 2011 on BOJ Bets
(Bloomberg) -- Japan’s five-year bond yield climbed to the highest since 2011 on growing speculation the nation’s central bank will raise interest rates further to stem the yen’s weakness.
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The yield advanced one basis point to 0.49% in the evening session on Friday, above a previous high of 0.485% set on Nov. 1. The swaps market is signaling expectations that the Bank of Japan’s target interest rate will rise to 0.3% by the year-end from the current target of zero to 0.1%, according to overnight-indexed swaps prices.
The yen dropped to a three-decade low against the dollar this week on prospects that despite the BOJ’s policy shift, yield differentials will remain wide between Japan and the US. With stepped-up verbal warnings from government officials but no visible signs of an actual intervention, investors are betting that the BOJ will have to bear the burden of supporting the yen.
“The Bank of Japan is increasingly expected to normalize policy further as the yen continues to weaken,” said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management in Tokyo. “Speculation is growing that the BOJ may conduct an additional rate hike as early as June.”
The steady decline in the yen has also boosted inflationary pressure, boding ill for longer-dated bonds. Yields have risen across the curve so far this year, with 30-year debt leading the move. The higher cost of living is putting political pressure on Japanese policymakers as well, as households deal with rising prices the likes of which they hadn’t experienced during decades of deflation.
Japanese bonds came under selling pressure too from rising yields in the US amid concern that sticky inflation will delay a possible start of Federal Reserve interest-rate cuts this year. Treasury 10-year yields have risen almost 70 basis points in 2024, more than twice the increase in similar-tenor Japanese debt.
--With assistance from Masahiro Hidaka.
(Adds a chart and strategist comment.)
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