Japan’s 10-year government bond yield declined to around 2.89% on Tuesday, extending its pullback from 30-year highs as the yen climbed to a seven-month peak, helping to ease domestic inflationary pressures. A stronger yen typically reduces the cost of imports, which can in turn contribute to softer inflation.
The currency’s advance has been fueled by the unwinding of carry trades, expectations of capital being repatriated to Japan, and mounting political pressure from the United States for Tokyo to support the yen through tighter monetary policy. Market participants widely anticipate that the Bank of Japan will raise interest rates this month. An economic adviser to Prime Minister Sanae Takaichi indicated that the central bank is likely to hike rates in September and implement another increase by January next year.
At the same time, fresh data showed that Japanese wages are rising at their fastest pace since 1997, while second-quarter GDP growth was revised higher. Both developments have reinforced expectations that the BOJ will adopt a more hawkish policy stance.
