Pressure from a sharp decline in U.S. bond yields overnight caused Japanese government bond yields to decline on Thursday as decreasing core inflation rekindled expectations of a July interest rate decrease by the Federal Reserve.
Nonetheless, the yen was strengthened, and the drop in domestic yields was lessened by growing wagers that the Bank of Japan would hike rates at its meeting next week.
As of 0300 GMT, the 10-year JGB yield had dropped one basis point to 1.24%, reversing its Wednesday top of 1.255%, which had not been seen since April 2011. As the yen surged to a one-month high of 155.21 per dollar, the benchmark yield, which had dropped as low as 1.225%, moderated the loss.
After falling as much as 15 basis points to a one-week low of 4.6370% in the previous session, the 10-year U.S. Treasury yield was trading at 4.6612% on Thursday.
Remarks made this week by BOJ Governor Kazuo Ueda and one of his deputies, Ryozo Himino, hinted at an impending tightening of policy. According to Reuters and other media, unless market volatility picks up again following Donald Trump’s inauguration as U.S. President, a rate rise is expected on January 24.
In a report, Barclays analysts pushed forward their call for the next BOJ hike from March to this month, indicating that at least the BOJ’s stance on rate hikes has wholly changed since December, even though there is still a great deal of uncertainty surrounding the Trump administration’s policy management and the market’s response to it.
The yield on the five-year JGB dropped one basis point to 0.88%. The 30-year yield remained unchanged at 2.355%, but the 20-year yield dropped one basis point to 2.005%. The day has not yet seen any trading in the two-year JGB. At 140.78, benchmark 10-year JGB futures increased by 0.19 yen. Bond prices are negatively correlated with yields. (Kevin Buckland reported; Rashmi Aich edited.)
