Japan’s 10-year government bond yield has ascended to a more than five-month peak, increasing by 4 basis points to 0.93%, the highest since November 3, and settled at 0.925%.
The two-year yield, reacting to the Bank of Japan’s (BoJ) monetary policy, rose to its highest since July 2009, at 0.315%. This movement reflects anticipation of the BoJ’s policy meeting’s conclusion, where rates are expected to remain steady.
The central bank, in its meeting concluding today, is anticipated to maintain interest rates and project that inflation will hover near its 2% target in the upcoming years. This forecast is based on the expectation of steady wage increases. Market participants are especially attuned to any indications from the BoJ concerning the yen, which has been weakening, recently surpassing 155 per dollar.
Although the BOJ does not directly manage the currency, the yen’s devaluation presents a challenge to the bank’s inflation outlook.
There is speculation that Governor Kazuo Ueda might adopt a hawkish tone or the BoJ could signal a reduction in its bond purchasing program, currently committed to buying 6 trillion yen worth of JGBs monthly.
The combination of a weakening yen and climbing oil prices has amplified inflation expectations. The break-even inflation rate reached record highs this week, revealing heightened market predictions for future inflation.
These expectations play a dominant role in the valuation of JGBs and are a key metric for investors.
Following the BoJ’s move away from negative interest rates in March, the yen has remained pressured due to low yields and a significant disparity with U.S. rates. Even though ten-year yields have approximately doubled this year, they are still just shy of the 1% threshold, which was the BoJ’s previous target cap until its policy shift in March.
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