Japan's 2-Year Bond Yield Hits 31-Year High on Rate-Hike Bets

Japan's two-year government bond yield climbed to its highest level in over three decades on Friday, as market participants increasingly priced in an early interest rate hike by the Bank of Japan (BOJ). The move comes amid renewed yen weakness following last week's rare joint currency intervention by Tokyo and Washington.

The two-year yield, which is the most sensitive to BOJ policy expectations, rose 4.5 basis points to 1.605% — its highest since May 1995. The five-year yield also advanced, climbing 5.5 basis points to 2.08%. Yields move inversely to bond prices.

According to Shuichi Ohsaki, senior portfolio manager at Meiji Yasuda Asset Management, the market's positioning reflects a continuation of bets that began after the government's intervention in the currency market last week. "The bets that the BOJ would raise rates as early as September revived today because the yen weakened," he said.

The yen's slide was driven by safe-haven demand for the U.S. dollar, as investors awaited details on a proposed deal to end the Iran conflict and positioned ahead of Friday's monthly U.S. jobs report.

Longer-dated Japanese government bonds also saw yields rise, with the 10-year yield up 3.5 basis points to 2.795%. The 20-year yield gained 2 basis points to 3.66%, while the 30-year yield edged up 1 basis point to 3.91%.