Japan’s 10-year bond yield rises 1.5bp ahead of BoJ and Fed meetings
The 10-year Japanese government bond yield climbed to 2.810% on Monday as traders positioned for this week's Bank of Japan and US Federal Reserve decisions, both expected to leave rates unchanged.
The move followed Japanese government bonds’ sharpest weekly rally since April 2025, which had been driven by investors seeking safety amid doubts about how much longer the artificial-intelligence-fueled stock rally can run. Yields move opposite to prices, so Monday’s increase marked a partial reversal of that flight to safety.
Shorter maturities also ticked up. The two-year yield, which tracks BoJ rate expectations closely, added 2.5 basis points to 1.885%, while the five-year yield gained 3 basis points to 2.250%.
The BoJ lifted its policy rate to 1.25% in September and meets on October 29-30, with most observers expecting it to hold steady while keeping a hawkish tone. Futures markets are increasingly pricing in another hike as soon as December, contingent on the central bank balancing persistent inflation against risks that a slowdown in AI-related investment could weigh on growth.
The Fed gathers on October 27-28 and is also widely seen holding rates steady, with economists polled by Reuters pointing to a possible move in December.
Investors are watching both central banks for guidance on the pace of future tightening, inflation trends and the broader growth outlook, which could in turn shape appetite for Japanese government bonds in the weeks ahead.
Why it matters: Signals from the BoJ and the Fed this week will help set expectations for global rate paths, influencing Japanese government bond yields, the US dollar, USD/JPY, and risk appetite across equities tied to the AI-driven rally.
Source: Economic Times Markets