JGBs extend selloff as hawkish BOJ board member calls for faster-paced rate hikes

Japanese government bonds continued their decline on Wednesday as a hawkish Bank of Japan board member called for more aggressive interest rate hikes. The 5-year bond yield surged to a record high of 2.295%, while the 2-year JGB yield climbed 4 basis points to 1.84%, the highest since April 1995. Bank of Japan member Hajime Takata stated that the central bank must raise interest rates quickly, taking into account domestic financial conditions and global developments.

This comment implied that the BOJ will increase policy rates this month and continue to do so at an unusual pace. Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management, confirmed that Takata's remarks suggest the BOJ will raise rates this month and maintain the upward trend. JGB yields have been climbing alongside the global market, reflecting investor concerns about inflation and increasing government debt levels, which could hurt consumers and businesses.

The yield on Japan's 10-year bond hit 3.01% as of Wednesday, its highest since May this year. The bond yield inversely correlates to bond prices. Prime Minister Sanae Takaichi's ambitious spending plans for fiscal 2027 could lead to a rise in sales of two- and five-year bonds, which would put further upward pressure on the 10-year bond yield.

Takashi Fujiwara, chief fund manager at Resona Asset Management's fixed income investment division, predicted that the selloff of Japanese government bonds would persist throughout the year. Inadome anticipates the 10-year bond yield to reach 3.2% by October, which would be double the level when Takaichi became Prime Minister last October.

The 30-year bond yield rose 1.5 basis points to 4.195%, close to a record high of 4.2% observed in May, ahead of an auction for the same maturity bond in the upcoming session.