JGB yields slide as yen surges on BOJ rate hike expectations
Japanese government bond yields fell sharply as the yen strengthened on expectations of faster BOJ rate hikes and reduced chances of a US Fed hike this month.
Japanese government bond (JGB) yields extended their decline on Friday, tracking a sharp appreciation in the yen driven by growing expectations of faster monetary tightening by the Bank of Japan (BOJ) and diminishing prospects of a US interest rate increase this month.
The 10-year JGB yield fell 5.5 basis points to 2.91%, while the 30-year yield slipped 7 basis points to 4.005%. Yields move inversely to bond prices.
"The selloff of JGBs and the yen has paused," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. He attributed the shift to expectations of a hawkish BOJ stance, alongside dovish comments from Federal Reserve officials that weakened bets on an early US rate hike.
Fed Governor Christopher Waller said on Thursday he would support keeping rates unchanged at the next policy meeting if upcoming data confirms easing inflation pressures. New York Fed President John Williams separately noted that rising long-term bond yields reflected economic strength rather than inflation concerns.
The yen jumped more than 2% against the dollar overnight. Gains were also supported by speculation that Japan's Government Pension Investment Fund (GPIF) may boost allocations to domestic bonds and yen-denominated assets following recent meetings.
US Treasury Secretary Scott Bessent has urged Japan to end its reflationary policies, a move that also helped reverse the trend of a weak yen and JGBs, Inadome said. However, he cautioned that Bessent's remarks may not be powerful enough to halt the JGB selloff in the long term, as they could influence monetary policy but are unlikely to change Japan's fiscal trajectory.