Japan’s 10-year Bond Yield Hits Decade High on US Yield Surge

Reuters

11:41 JST, September 28, 2023

TOKYO (Reuters) – Japan’s benchmark 10-year government bond yield scaled a 10-year peak on Thursday, pulled higher by the climb in U.S. yields to 16-year highs.

Investors were also cautious ahead of the results of a two-year note auction later in the day, following a run of weak demand marring most of the finance ministry’s sales over the past month and a half.

The 10-year JGB yield JP10YTN=JBTC added 1.5 basis points (bps) to 0.75%, after spending a week bumping against 0.745%.

Although the Bank of Japan now sets a de-facto ceiling for the 10-year yield following a surprise policy tweak in late July, the rise in the yield has been very gradual, with some pullbacks and plateaus.

“The dynamics are very simple: The BOJ is purchasing heavily, so investors don’t have any JGBs left to sell,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management.

At the same time, “there is still room for Japanese yields to rise under the current monetary policy framework,” but it may require some tweaks to the size and frequency of the BOJ’s purchases, he said.

Since July 27, the day before the BOJ’s policy shift, the benchmark 10-year yield has risen 31 bps.

Equivalent Treasury yields US10YT=RR have risen 55 bps this month alone to touch the highest since October 2007 overnight at 4.642%.

The two-year JGB yield JP2YTN=JBTC rose 1 bp to 0.035%.

In the superlong sector, 20- JP20YTN=JBTC and 30-year JP30YTN=JBTC yields each added 1.5 bps to 1.475% and 1.725%, respectively.

The five-year note JP5YTN=JBTC had yet to trade, as of 0209 GMT.