Japan's sovereign bond yields soared to the highest level in more than 10 years, and there are signs that the Bank of Japan is preparing to reduce bond purchases to ease the pressure on the weak yen.
Japan's sovereign bond yields soared to the highest level in more than 10 years, and there are signs that the Bank of Japan is preparing to reduce bond purchases to ease the pressure on the weak yen.
The yen fell slightly to 156.45 against the US dollar, falling for the third day in a row.
Japan's 20-year sovereign bond yield rose 3.5 basis points to 1.77%, the highest level since 2013, while the yield on 30-year sovereign bonds reached the highest level since at least 2011. The benchmark 10-year Japanese Treasury yield rose two basis points to 0.96%, slightly below the highest level in more than 10 years.
The Bank of Japan proposed to buy smaller bonds on Monday, triggering speculation that the bank will speed up the normalization of monetary policy to support the yen. This turned the focus to today's 5-year treasury bond auction to look for more signs of rising yields.
Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, said: “The market is uncertain about whether yesterday's reduction in the size of bond purchases was just a one-off. The scale may be reduced at any time, possibly as early as Friday, which puts upward pressure on yields.”
Japanese Treasury yields have been rising due to rising US Treasury yields and market speculation that the Bank of Japan will raise interest rates again sooner or later. The huge yield gap between Japan and the rest of the world (especially the US) has been driving the yen depreciating.