Japan 10-year yield climbs to 1996 high as global rout deepens

Japan’s 10-year government bond yield climbed to its highest since 1996, joining a deepening global selloff as the market reopened after the Silver Week holidays.

The yield rose 10 basis points to 3.075% on Thursday after the three-day break. Yields across the curve also climbed, with the five-year rate rising 9.5 basis points to 2.37%.

The moves followed an intensifying selloff in Treasuries, where robust US economic data and weak demand at a debt auction pushed yields across much of the curve to their highest levels in almost two decades. Rising oil prices added to inflation concerns and reinforced expectations for further Federal Reserve interest-rate hikes.

Domestic pressures are adding to the selloff. The Bank of Japan raised its benchmark rate Friday and left the door open to further tightening, though traders were disappointed by the lack of clearer guidance on the pace of future moves. That leaves Japanese yields exposed to both expectations for additional BOJ hikes and the global repricing of longer-term borrowing costs.

The combination of two dissents against last week’s rate increase and the absence of a proposal for a larger 50-basis-point move has also fueled concern that the BOJ risks falling behind the curve on inflation, according to Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. Those worries, alongside rising US yields, are contributing to the selling, he said.

Fiscal concerns are adding pressure further out the curve. The government is said to be considering a new mid-term defence spending target of 3.5% of GDP, in line with NATO and other US allies, adding to scrutiny over Prime Minister Sanae Takaichi’s spending plans and how additional expenditure would be financed.

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