Japan 2-year yields rise to 31-year high as auctions, rate hikes loom

Japan's two-year government bond yield rose to 1.730%, a 31-year high, on Monday, according to Business Recorder. The short-dated yield, which is most sensitive to Bank of Japan policy rates, added 0.5 basis points and has not been this high since April 1995. Traders are increasingly betting that the central bank will raise rates.

The benchmark 10-year yield climbed 1 basis point to 2.935%, while the 30-year yield rose 1.5 basis points to 4.135%. Ministry of Finance auctions of 10-year bonds on Tuesday and 30-year debt on Thursday add uncertainty, as analysts question whether demand will hold up. Separately, Federal Reserve Chairman Kevin Warsh said on Friday that the central bank has more work to do if inflation does not ease toward 2%, and came close to acknowledging that rate hikes may be needed.

Tokyo consumer prices rose in August, data released on Friday showed, strengthening the case for a Bank of Japan rate increase next month. ANZ's head of FX research, Mahjabeen Zaman, said the figures reinforce a more hawkish BOJ stance and expects a 25 basis point hike at the September meeting. She expects further moves over the following quarters that would take the terminal rate to 1.75%.