Japan Bond Yields Climb as Oil Surge and Fed Decision Keep Markets on Edge

Japanese government bond yields extended their gains on Wednesday, as climbing oil prices linked to the escalating Middle East conflict sharpened inflation concerns ahead of the US Federal Reserve's interest rate decision.

The benchmark 10-year JGB yield added 0.5 basis point to 3.035%, having touched a fresh 30-year high a day earlier. Yields move inversely to bond prices. Longer-dated paper saw sharper moves: the 20-year yield rose 4 basis points to 3.925%, while the 30-year yield also gained 4 basis points to 4.190%.

Oil prices held in the mid-$100-a-barrel range after shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh had cancelled some cargo deliveries to European customers.

Overnight, the yield on the benchmark US 10-year Treasury note rose to 5.004%, after earlier climbing to 5.041% — its highest since July 2007.

The Fed is due to announce its policy decision at 2 p.m. EDT (1800 GMT) on Wednesday, following the end of its two-day meeting. Financial markets are betting heavily that the US central bank will raise its benchmark rate by a quarter of a percentage point, to a 3.75%-4.00% range, and signal further tightening ahead.

At home, the Yomiuri newspaper reported that Prime Minister Sanae Takaichi is likely to retain Minoru Kiuchi as minister in charge of economic revitalisation in a cabinet reshuffle scheduled for Thursday. Markets have been focused on whether Kiuchi, an advocate of expansionary fiscal and monetary policy, would keep his post for clues about whether the recent bond selloff might push Takaichi to rein in her spending plans.

"In the bond market, many had viewed the possible replacement of Kiuchi as a buying factor, so some unwinding of those expectations could emerge today," said Keisuke Tsuruta, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities.