Japan’s 10-year government bond yield climbed above 2.8% on Monday, its highest level in three weeks, as investors stepped up expectations for another interest rate hike by the Bank of Japan. Last week, the BOJ kept its policy rate unchanged at 1%, as widely anticipated, maintaining borrowing costs at their highest level since September 1995 after a 25-basis-point increase in June.
Policymakers nonetheless highlighted upside risks to inflation stemming from demand-driven price pressures, partly linked to the conflict in the Middle East. BOJ Governor Kazuo Ueda said it is “more necessary than ever” to remain alert to the risk of higher inflation, given its potential negative impact on the economy. Even so, he reiterated that the central bank expects underlying inflation to be broadly in line with its 2% price stability target from the second half of fiscal 2026 through the subsequent fiscal year.
