JGB yields climb as oil prices stoke inflation, BOJ hike bets firm

Japanese government bond yields rose on Monday, driven by renewed inflation concerns after crude oil prices climbed and the yen weakened. Investors also weighed growing expectations that the Bank of Japan could raise interest rates as soon as September.

The benchmark 10-year JGB yield gained 1.5 basis points to reach 2.810%. The two-year yield, which is most sensitive to BOJ policy expectations, rose 1 basis point to 1.615% — its highest level since May 1995. The five-year yield touched 2.09%, matching a record high set last week, before settling at 2.085%.

"Inflation fears grew after oil prices rose," said Miki Den, senior Japan rate strategist at SMBC Nikko Securities. Oil prices were supported by uncertainty over the reopening of the Strait of Hormuz, as Iran said a deal with Oman on new shipping lanes was in its final stages but insisted the U.S. must still meet other conditions.

The yen also gave up some of its intervention-driven gains, which added to inflation concerns, Den noted. The Japanese currency was last down 0.27% against the U.S. dollar at 158.195.

Meanwhile, the case for a September BOJ rate hike strengthened after a summary of opinions from the bank's July meeting showed a growing number of policymakers arguing for a more forceful response to rising inflation risks.