Japanese government bond yields rise as yen weakens

JGB yields: Japanese government bond (JGB) yields saw an increase on Wednesday, mirroring the movement of US Treasury yields. This trend coincides with a weaker yen, fueling expectations that the Bank of Japan (BOJ) will move towards normalising its ultra-easy monetary policy in March.

The 10-year JGB yield rose by 2.5 basis points (bps) to 0.750 per cent, reaching its highest level since December 12, when it touched 0.765 per cent earlier in the session.

The upsurge in Treasury yields, which often influence Japanese yields, came after the release of a stronger-than-expected domestic consumer price index (CPI) report. This pushed the 10-year yield to a fresh two and a half-month high of 4.332 per cent during Asian trading.

US and JGB yields 

Resona Holdings' strategist Takeshi Ishida noted, "With US yields on the rise, this is an environment where it's easy for JGB yields to go up."

Simultaneously, the dollar's strength has pushed the yen below the psychologically significant level of 150 per dollar for the first time since November. This dynamic, combined with rising yields, has led to speculation in the market that the BOJ will need to phase out negative interest rates in March.

Ishida commented, "I think the weakening yen is putting a lot of pressure" on the bank, highlighting the challenges the BOJ faces with its current monetary policy, which includes yield curve control (YCC) and negative short-term rates. Critics argue that these policies have contributed to sharp declines in the yen, leading to increased import prices and higher living costs for households.

(with Reuters inputs)