JGB yields jump as inflation worries resurface

Japanese government bond yields surged on Thursday as inflation concerns resurfaced, despite the Bank of Japan (BOJ) increasing its policy rate to a 31-year high the previous week. The 10-year yield climbed 10 basis points to 3.075%, reaching its highest since August 1996, while the five-year yield also rose 10 bps to a record high of 2.375%.

This sell-off of bonds was driven by a global market downturn, domestic inflation worries, and signals from BOJ Governor Kazuo Ueda suggesting more rate hikes, which raised market concerns that the central bank may still be lagging in addressing inflation. Yields are inversely related to bond prices. Japanese interest rates remain low, as noted by Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management.

Ueda's indication of potential further rate hikes after the policy meeting, coupled with the weakening yen, prompted Japanese authorities to conduct rate checks in the currency market following the BOJ's decision. The US Treasury yields also jumped significantly, reflecting fresh inflation fears and an underwhelming auction of five-year notes.

The dollar strengthened to its highest level in nearly two months as expectations grew of an imminent Federal Reserve rate hike. Local media reports suggested that Economic Minister Minoru Kiuchi was seeking advice from reflationist economists to shape the economic blueprint, which further heightened concerns about the central bank's potential delay in tackling rising prices.

Prime Minister Sanae Takaichi's first economic blueprint, aimed at growth, had previously unsettled markets, causing bond yields to rise. On Thursday, the 20-year JGB yield increased by 8 bps to 3.900% and the 30-year yield rose by 6 bps to 4.130%.