BOJ Rate Hike Bets Send Japanese Bond Yields Soaring

Japan's bond market is under pressure due to speculation about an upcoming interest rate hike by the Bank of Japan (BOJ). The yield on the 10-year government bond rose to 2.93%, its highest level since 1996, while the 30-year yield climbed to 4.06%. This increase in yields comes as the BOJ is likely to raise rates in September or October, according to people familiar with the matter.

The Prime Minister's administration has expressed support for a near-term rate hike, which has contributed to the market's expectation of further tightening by the central bank. Market participants are also concerned about fiscal policy, as the government has yet to clarify how it will fund its plan to cut the sales tax on food for two years.

Ryutaro Kimura, senior bond strategist at BNP Paribas Asset Management, noted that investors are returning from summer holidays and market liquidity is improving, leading to a faster pace of BOJ rate hikes being priced in by the bond market.