TOKYO: Yields on shorter-end Japanese government bonds (JGBs) rose to a one-week high on Wednesday as the market braced for the Bank of Japan to raise interest rates this week.

The two-year JGB yield rose 2 basis points (bps) 0.69% and the five-year yield rose 2.5 bps to 0.87%, their highest level since Jan. 16.

The 10-year JGB yield rose 1 bp to 1.195%, also its highest since Jan. 16.

“Investors sold bonds, particularly those with two- and five-year maturities, as the market witnessed a weak outcome of the BOJ’s bond-buying operation,” said Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The BOJ offered to buy bonds with maturities between one and 25 years in its regular operation. US Treasury yields rose in Asian trading, prompting investors to sell bonds.

As the market reaction to US President Donald Trump’s inauguration remarks was limited, the BOJ is set to raise its policy rate this week, strategists said.

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Swap rates indicated an 88.29% chance of the BOJ hiking rates by 25 bps to 0.5% on Friday. Yields with longer maturities fell after an auction for 40-year bonds in the previous session saw firm demand, said Otsuka.

The 20-year JGB yield fell 1 bp to 1.885% and the 30-year JGB yield fell 0.5 bp to 2.25%. The 40-year JGB yield fell 2 bps to 2.66%.