Japan bond yields rise as US Treasury selloff persists, BOJ outlook in focus

Tokyo saw Japanese government bond yields climb on Thursday as investors remained wary of inflation risks and the potential for tighter central bank rate hikes, mirroring a rise in US Treasury yields. The benchmark 10-year JGB yield increased by 5 basis points to 3.11%, with similar surges in 20-year (3.945%) and 30-year (4.2%) yields.

The 5-year yield climbed 1 basis point to 2.385%, while the 2-year yield fell 1 basis point to 1.94%, showing a continued decline after a strong auction eased concerns. A Bank of Japan Tankan survey revealed Japanese business confidence at an eight-year high in July-September, suggesting the need for interest rate hikes. However, BOJ policymakers signaled that they may accelerate tightening or shift rates closer to their target sooner.

Despite this, a Cabinet Office representative at the meeting expressed caution about the economic impact of higher borrowing costs and urged restraint on further rate increases. Analysts interpreted these comments as potential signs that the Bank of Japan might be hesitant to act swiftly to curb inflation, potentially leading to upward pressure on long-term interest rates due to heightened inflation expectations.