JGB yields flat as market braces for BOJ's September rate hike

Japanese government bond yields were broadly steady on Thursday, according to Business Recorder, as traders priced in a Bank of Japan rate increase expected in September. The five-year yield held at 2.105%, near the record 2.12% reached in the previous session. The two-year yield, which tracks policy rates most closely, stood at 1.64%, its loftiest reading since May 1999.

Expectations for a September move strengthened after Tokyo and Washington jointly intervened in currency markets late last month, lifting the yen and raising bets that the BOJ would need to keep tightening. Markets now assign a 95% chance of a 25 basis point increase to 1.25% by the October meeting, while swap rates imply roughly a 50% chance of another rise to 1.5% in December.

The 10-year yield climbed 2 bps to 2.87%, while the 30-year rose 1 bp to 4.000%, a rise the report linked to concern over the country's public finances. Shuichi Ohsaki of Meiji Yasuda Asset Management said investors now focus on the pace of rate hikes rather than the final level, and that the yen may not strengthen even if the BOJ tightens in September given spending concerns such as a large stimulus package and food tax cuts.