Japan bond yields diverge as investors weigh inflation, BOJ outlook

Japanese government bond yields moved in opposite directions on Tuesday, as investors carefully weighed persistent inflation signals and the central bank's policy outlook. The 2-year yield, which is most sensitive to Bank of Japan policy rates, increased by 1 basis point to 1.915%, while the 5-year yield climbed 1.5 basis points to 2.350%. In contrast, the 30-year JGB yield slipped by 1 basis point to 4.045%, marking a fourth consecutive session of declines. The 40-year yield and the 20-year yield remained unchanged.

Market participants continued to monitor the Bank of Japan's stance following its September rate hike and recent signals that further tightening might still occur. Experts expect another 25-basis-point hike by year-end. On Tuesday, Japan's wholesale prices rose by 6.8% year-on-year in September, which was a slowdown from 7.6% in August but still fell short of forecasts. Import prices surged by 24.5% on the weakening yen, reinforcing concerns about persistent inflation pressures.

Keisuke Tsuruta, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, noted in a note that long and super-long yields fell relatively sharply late last week, but this was likely a rebound from earlier moves. Tsuruta expressed caution about whether the trend could continue. The benchmark 10-year JGB yield held steady at 3.01%.