Japan's 2-Year Bond Yield Approaches 2% as Market Anticipates BOJ Hawkish Shift

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Japan's 2-year bond yield is closing in on the 2% mark, a level it has not reached in more than 30 years. The market is increasingly of the view that Japan's long battle with deflation is over and that the Bank of Japan needs to raise its policy rate to a restrictive level. The 2-year yield has doubled over the past 12 months and is now more than six times its level at the same time in 2024. The 5-year yield hit a record 2.43% on the 28th, and the 2-year, 1-month interest rate swap rate also rose to a record 2.5%. According to Tokyo Tanshi, the probability of a rate hike to a 1.5% policy rate in October, based on swap rates, is 36%, while a December hike is priced in as nearly certain. The timing of the next rate hike may depend on the results of the Bank of Japan's Tankan survey due on the 1st, and Takashi Fujiwara of Resona Asset Management noted that if capital investment in the Tankan proves solid, the view that a rate hike could come as early as October may gain strength.

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Tokyo Tanshi Co., Ltd.Private± Mixed
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