Japan 2-year yields nearing 2% signal BOJ's yen battle isn't over
TLT•Japan’s two-year bond yield reached 1.975% on Monday, its highest since March 1995, as markets priced in possible further Bank of Japan rate hikes. Swap rates indicate a 36% chance of an October hike to 1.5%, with a December move fully priced in.
1. Yields climb as rate bets rise
Japan’s two-year bond yield has doubled over the past 12 months and reached 1.975% on Monday. The Bank of Japan raised its key policy rate to 1.25% earlier this month, a 31-year high.
2. Yen weakness adds pressure
Persistent yen weakness has drawn attention from policymakers after Tokyo and Washington jointly bought yen in July and August. Analysts say markets increasingly see the BOJ’s policy focus shifting toward the currency and the possibility of consecutive rate hikes.
3. Markets weigh October move
Swap rates indicate a 36% chance of a rate hike to 1.5% in October, while traders have priced in a December hike as certain. The timing may depend on the Tankan survey of major manufacturers due Thursday; one fund manager said strong capital investment could strengthen the case for an October hike.
