Japan’s 10-year government bond yield hits highest in 27 years… surging oil prices deliver a “direct blow”

Korea Economic Daily

Summary

Japan’s 10-year government bond yield rose to 2.425% per year, reaching its highest level in about 27 years since February 1999.
It said that rising oil prices and resulting inflation concerns, expectations of an early policy rate hike by the Bank of Japan, and hopes for increased government fiscal spending are fueling the rise in JGB yields.
Experts said long-term rates could exceed 2.5%, and that with lower potential growth, there is uncertainty over companies’ and the government’s ability to absorb the burden of higher JGB yields.

Forecast Trend Report by Period

Japan’s 10-year government bond yield surged to its highest level in 27 years. Bond selling is continuing amid inflation concerns driven by rising oil prices.

On the 6th in Japan’s bond market, the 10-year JGB yield— a key benchmark for long-term rates— rose at one point to 2.425% per year (bond prices fell). It marked the highest level in about 27 years since February 1999. Inflation worries tied to higher oil prices weighed on the market.

Expectations that the Bank of Japan will move to raise its policy rate earlier to rein in inflation are also fueling bond selling. Forecasts that the Japanese government will increase fiscal spending as an inflation countermeasure likewise added upward pressure on JGB yields.

Eiji Doke, chief bond strategist at SBI Securities, said “2.4% per year is a passing point,” adding that “long-term rates will surpass 2.5% per year within the next 1 to 3 months.” Nana Otsuki, a professor at the Graduate School of Business Administration at Nagoya University of Commerce & Business, commented to Nihon Keizai Shimbun that “given that potential growth has declined substantially compared with the 1990s, there is uncertainty about the ability of companies and the government to absorb the burden of higher JGB yields.”

Tokyo = Kim Il-gyu, correspondent black0419@hankyung.com