The Bank of Japan's rate hike signals ignite the bond market, yield curve experiences sharp fluctuations, and the market bets on this month's interest rate rising to 1%.

汇通财经2026/06/04 09:51

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Japanese government bonds weakened for a second consecutive trading day, nearly erasing all gains from Tuesday. The yield curve steepened for maturities within 15 years and then leveled out. Compared with three days ago, 2-year and 5-year yields have risen, while yields for maturities of 10 years and above have declined, mainly due to growing market expectations of a rate hike at this month's policy meeting. Bank of Japan Governor Kazuo Ueda said on Wednesday that the second-round effects of inflation triggered by rising oil prices are more likely to cause underlying inflation to persistently rise, making it necessary for the central bank to take this into consideration when implementing its policies.
Ueda warned that if the central bank is slow in taking the necessary policy actions, it will be forced to raise rates sharply, which could place a significant burden on economic activity, markets, and the financial system. He believes that it is now more important to guard against the risk of inflation significantly overshooting expectations and subsequently having a negative impact on the economy, rather than worrying about downside risks to the economy. Institutions report that the Bank of Japan will consider raising rates to 1% at this month's meeting and may hike again before the end of the year. Following the announcement, the 10-year yield briefly touched 2.67%.
Ueda emphasized that the functionality of the Japanese government bond market has steadily improved during the process of reducing bond purchases, with long-term yields increasingly determined by market forces. However, it will take time for Japanese banks and retail investors to increase their holdings of government bonds, and the central bank should take this into account when deciding on further reduction plans. The afternoon auction result for non-competitive bonds was weaker than expected, with the 30-year non-competitive bond yield rising by 6.5 basis points compared to yesterday, and selling intensified. However, spot bonds have already partly priced in the possibility of a rate hike, and futures quickly rebounded after hitting a daily low, showing that the market is digesting the new policy trajectory.

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The Bank of Japan's rate hike signals ignite the bond market, yield curve experiences sharp fluctuations, and the market bets on this month's interest rate rising to 1%.

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