Japan’s 10-year government bond yield fell to around 2.38% on Tuesday, marking a second consecutive decline amid growing uncertainty over the Bank of Japan’s policy path. Market reports indicate the central bank is likely to leave its policy rate unchanged this month while it assesses the economic fallout from the Middle East conflict. However, it may also signal a readiness to resume policy normalization as early as June.
The BOJ is expected to raise its inflation forecasts and cut its growth projections, reflecting the impact of higher energy prices and broader economic headwinds linked to the Iran war. At the same time, investors are closely watching US-Iran peace efforts, with both parties expected to send delegations to Islamabad for a second round of talks before the current ceasefire expires.
Oil prices and the US dollar have both softened, reducing pressure on the yen and on Japanese government bonds, a notable development given Japan’s heavy dependence on energy imports from the Middle East.
