BOJ Rate Hike Bets Surge as Japan Yields Rise

Japanese government bond yields rose on Wednesday as markets increasingly priced in the possibility of a Bank of Japan interest-rate hike as early as September. The benchmark 10-year Japanese government bond yield rose 4.5 basis points to 2.850%, with yields moving inversely to bond prices.

The five-year yield gained 2.5 basis points to a record 2.110%, while the two-year yield, which is particularly sensitive to BOJ policy expectations, climbed 3.5 basis points to 1.645%, its highest level since May 1995. Traders have brought forward their expectations for the BOJ's next rate increase to September from December.

The shift in expectations followed recent Japan-U.S. joint currency intervention aimed at supporting the yen and a more hawkish tone in the BOJ's July summary of opinions, according to investors. Markets were pricing in a 78% probability of a September rate hike as of midday Tuesday, up from 66% on Monday afternoon.