Japanese government bonds slide on inflation signs, BOJ rate-hike bets

Business Recorder reported that Japanese government bonds fell on Monday, pushing yields back towards multi-decade peaks as traders weighed inflation risks and the chance of further tightening by the Bank of Japan. The benchmark 10-year yield climbed 2 basis points to 3.095%, on track for its loftiest close since August 1996. Yields move in the opposite direction to bond prices.

The two-year yield, which tracks Bank of Japan policy rates most closely, edged up 1.5 basis points to 1.950%, equaling a 31-year peak set last week. Japan's service-sector inflation gauge accelerated in August to its quickest yearly rate in over two years, and the report said the price pressures could warrant further rate increases.

Ataru Okumura, a strategist at SMBC Nikko Securities, wrote that other advanced economies share inflation drivers such as expansive fiscal policy and elevated commodity costs, so the BOJ may eventually also need to tighten. Minutes of the BOJ's July policy meeting, released Monday, showed board members focused on inflation, with some pushing for quicker rate hikes. The central bank lifted its policy rate to 1.25% earlier this month, reaching a 31-year high.