TOKYO: Japanese government bond (JGB) yields moved higher on Friday, as a weaker yen put concerns about the Bank of Japan’s (BOJ) monetary policy outlook front and centre.
The 10-year JGB yield rose to more than a one-week high of 0.98% and was last up 2.5 basis points (bps) at 0.975%.
Market focus was on the yen, which fell to the 159 range against the dollar in the Asian morning for the first time since April 29, back toward a 34-year low of 160.245.
Investors have pulled back bets for another interest rate hike next month after Japan’s central bank postponed laying out a detailed plan for tapering its bond purchases until July, with many suspecting the BOJ won’t do both at the same time.
But Governor Kazuo Ueda said at the conclusion of last week’s monetary policy meeting that he would not rule out raising rates in July as weakness in the depreciating currency pushes up import costs.
The two-year JGB yield, which tends to correspond more closely with monetary policy expectations, ticked up 1.5 bps to 0.3% after declining as low as 0.28% this week.
“The yen weakens on speculation that the BOJ can’t move aggressively. But market players suspect the BOJ will have no choice but to act if the yen depreciates, so they price in another rate hike in July.
We’re in that kind of cycle,“ said Chotaro Morita, chief strategist at All Nippon Asset Management. The five-year yield rose 2 bps to 0.535%.
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The 20-year JGB yield climbed 3.5 bps to 1.815%.
The 30-year JGB yield was up 2 bps at 2.14%. Data on Friday showed Japan’s core inflation accelerated in May due to energy levies but an index that strips away the effect of fuel slowed for the ninth straight month.
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