Japan Bond Yields Hit Multi-Decade Highs on Rate-Hike Expectations

Japanese government bond yields extended their rise to multi-decade highs on Friday, pressured by a global fixed-income selloff and growing expectations that the Bank of Japan will continue tightening monetary policy.

The benchmark 10-year JGB yield rose 4 basis points to 3.115%, a level last recorded in August 1996. The 5-year yield added 3 basis points to reach a record 2.405%. Bond yields move inversely to prices.

The move followed a sharp overnight jump in U.S. Treasury yields to multi-year peaks, as firmer oil prices rekindled inflation concerns and investors increased bets on a near-term Federal Reserve rate hike.

Analysts at Barclays Securities Japan, led by Shinichiro Kadota, said in a note that rising rate-hike expectations amid persistent yen weakness, a widening term premium linked to fiscal discipline concerns, and higher overseas rates are likely to keep pushing yields upward.

The BOJ raised its policy rate to a 31-year high of 1.25% last week. Former central bank board member Makoto Sakurai said the BOJ could hike roughly once every three months, aiming toward the 2% level by around June next year.

Short-end yields also climbed. The 2-year yield, which is most sensitive to BOJ policy rates, rose 2 basis points to 1.92%, the highest since April 1995. The 40-year JGB yield, Japan's longest tenor, gained 5.5 basis points to 4.255%.