Japan’s 10-year government bond yield slipped to around 2.8% on Tuesday, as lower oil prices helped ease inflation worries and reduced pressure for more aggressive monetary tightening. The move came after President Donald Trump proposed a new round of peace talks with Iran, amid ongoing efforts to quickly reopen the Strait of Hormuz.
Despite the pullback, Japanese government bond yields remained underpinned by growing expectations of another interest rate hike by the Bank of Japan. Last week, the BOJ kept its policy rate unchanged at 1%, as widely anticipated, after raising it by 25 basis points in June. Policymakers nonetheless highlighted upside risks to inflation stemming from demand-driven price pressures related to the conflict in the Middle East. BOJ Governor Kazuo Ueda also stressed that it is “more necessary than ever” to stay alert to the risk of higher inflation, given its potentially adverse impact on the economy.
