Japan bond yields rise as oil gains stoke fresh inflation concerns
The move higher in JGB yields, led by a record high on the five year and the highest two year print since May 1995, reflects markets pricing a firmer case for further Bank of Japan tightening as imported inflation risk builds via crude. That the two year, the tenor most sensitive to BOJ policy, is leading the move fits with Tokyo Tanshi data showing traders now assign roughly two in three odds to a September hike.
Notably, the rise in domestic yields has not yet translated into yen support, with strategists flagging that the broader external backdrop, rising US long-term yields, firmer crude and a stronger dollar against the yen, remains the dominant force for now. That leaves open the possibility that higher JGB yields could eventually provide the yen with some offsetting support if the rate differential narrative gains more traction, but for the moment external pressures are outweighing the domestic tightening signal. Wednesday's US CPI print looms as a swing factor for both the dollar leg of that equation and the broader path of global yields.
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Earlier:
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Japan's yields are climbing on inflation risk from abroad, but so far the yen isn't getting the memo.
Summary:
- The benchmark 10-year JGB yield rose 1.5 basis points to 2.820%, the 5-year rose 1.5 basis points to a record 2.100%, and the 2-year, the tenor most sensitive to BOJ policy, rose 2 basis points to 1.63%, its highest since May 1995
- The moves came as crude oil prices climbed on renewed Middle East uncertainty, adding to inflation concerns, while investors also awaited key US inflation data for interest rate clues
- Iran's top security official said the Strait of Hormuz will remain closed unless the US accepts Iran's conditions, including release of Iran's frozen assets and an end to conflicts across the region including Lebanon and Gaza
- The US and Houthi forces reported separate shipping attacks, with Brent crude settling up 1.4% at $88.91 a barrel and US crude up 1.3% at $83.20
- Analysts say external conditions, including rising US long-term yields, crude prices and a stronger dollar against the yen, are likely to remain a headwind
- Despite the rise in Japanese yields, that support has yet to show up in the yen, with the external pressures described by Tsuruta currently outweighing any domestic rate differential benefit
- Traders are increasingly pricing in a further BOJ hike, with Tokyo Tanshi data showing a 66% chance of a move in September as of Monday afternoon
Japanese government bond yields rose on Wednesday as crude oil prices climbed on renewed uncertainty over the Middle East, adding to inflation concerns just as investors awaited key US inflation data for further clues on the interest rate outlook. The benchmark 10-year JGB yield rose 1.5 basis points to 2.820%, while the 5-year yield also rose 1.5 basis points to 2.100%, a record high. The 2-year yield, the tenor most sensitive to Bank of Japan policy rates, increased 2 basis points to 1.63%, its highest level since May 1995. Other tenors had yet to trade as of 0019 GMT.
The move higher in yields came against a backdrop of fresh geopolitical strain. Iran's top security official said on Tuesday that the Strait of Hormuz will remain closed unless the United States accepts Iran's conditions for ending the conflict, namely the release of Iran's frozen assets and an end to wars across the region, including in Lebanon and Gaza. Separately, the United States and Yemen's Iran-aligned Houthis each reported attacks on shipping on Tuesday. Brent crude futures rose $1.19, or 1.4%, to settle at $88.91 a barrel, while US crude rose 1.3% to $83.20.
Keisuke Tsuruta, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said external conditions are likely to remain a headwind, pointing to recent rises in US long-term yields, crude oil futures and the dollar against the yen. That comment also underscores a notable disconnect in currency markets, where the rise in JGB yields has yet to provide any meaningful support for the yen. In theory, higher domestic yields should make yen-denominated assets more attractive on a rate differential basis, but for now the external forces Tsuruta describes, a firmer dollar chief among them, continue to dominate. Whether rising Japanese yields eventually translate into yen strength may depend on how much further the Bank of Japan tightening narrative advances relative to the pace of moves in US yields and the dollar.
Wednesday's US Consumer Price Index data could prove decisive for the path of interest rates on both sides of the Pacific. Traders are separately increasing bets on further BOJ tightening, with Tokyo Tanshi data showing a 66% chance of a rate hike at the September meeting as of Monday afternoon, up from prior levels, as the combination of imported energy inflation and a resilient domestic growth picture builds the case for the Bank of Japan to act again before year end.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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