On Thursday, the benchmark 10-year government bond yield in Japan reached a 10-year high as a result of the rise in U.S. yields to 16-year highs.
Following a stretch of lacklustre demand that marred the majority of the finance ministry’s auctions over the last month and a half, investors were also wary ahead of the results of a two-year note auction later in the day.
After brushing against 0.745% for a week, the 10-year JGB yield increased by 1.5 basis points (bps) to 0.75%.
After a sudden change in policy in late July, the Bank of Japan currently sets a de facto ceiling for the 10-year yield, but the rise in the yield has been fairly slow, with periodic pullbacks and plateaus.
According to Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management, “the dynamics are very straightforward: The BOJ is purchasing heavily, so investors don’t have any JGBs left to sell.”
However, he added, “there is still room for Japanese yields to rise under the current monetary policy framework,” though doing so could need changing the quantity and frequency of the BOJ’s purchases.
The benchmark 10-year rate has increased 31 basis points since July 27, the day before the BOJ’s change in policy.
Equivalent Treasury yields have increased by 55 bps just this month, reaching a high of 4.642% overnight, which is the most since October 2007.
The yield on two-year JGBs increased by 1 bp to 0.035%.
The superlong sector had a 1.5 increase in both the 20- and 30-year rates.