BOJ Rate Hike Bets Fuel Japanese Bond Yields Amid Yen Uncertainty

Japanese government bond yields held steady on Thursday, despite some market participants positioning for a potential Bank of Japan rate hike in September. The five-year JGB yield hovered near a record high at 2.105%, after touching 2.12% in the previous session.

The two-year yield, which is sensitive to expectations for BOJ policy rates, was unchanged at 1.64%, its highest level since May 1999. Market participants are increasingly focused on not only the timing of the next rate increase but also the pace of subsequent hikes.

Expectations for a September rate hike have gained momentum following a joint currency intervention by Japan and the United States at the end of last month. The move boosted the yen and increased expectations that the Bank of Japan could raise interest rates to support the currency and contain inflationary pressures.