JGB yields rise sharply as weak yen fuels bets for BOJ rate hike
TLT•October rate hike expectations increase
Prospects for a rate hike at the BOJ's policy meeting in October have increased after a Bloomberg News report that said BOJ officials were open to raising interest rates at a faster pace than the consensus among economists.
The two-year bond yield has risen 8 bps this week, its sharpest weekly jump since mid May.
"The market expectations for the October rate hike might be too high," said Rinto Maruyama, senior strategist for FX and Rates at SMBC Nikko Securities.
"The central bank needs more time to review the effects of its June rate hike on the economy, such as on higher rates on corporate lending," said Maruyama.
Weak yen and inflation worries steepen the curve
The Bloomberg report, which did not cite anyone, came after the yen fell to an almost four-decade low against the U.S. dollar, raising concerns on import costs and accelerating inflation.
The BOJ is concerned about the weak yen and its impact on prices, and it would turn hawkish to reverse the trend when necessary, said Maruyama.
But such messages would come from public speeches by BOJ top officials or board members, he said.
On Friday, super-long ends sold off more heavily on growing inflation worries after oil prices settled above $100 overnight, steepening the yield curve.
Market players might have sold super-long bonds after the yield curve flattened in the previous session, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.
The rise in yields on two- and five-year bonds was capped until recently as their yields had priced in the BOJ's future rate hike path.
