BOJ Rate Hike Expectations Keep Japanese Bond Yields Flat

The Japanese government bond market remained relatively stable on Thursday, with yields showing little change despite expectations of a rate hike by the Bank of Japan (BOJ) in September.

The five-year JGB yield was flat at 2.105%, holding near its record high level set in the previous session. The two-year yield, which is most sensitive to BOJ policy rates, remained unchanged at 1.64% - a level not seen since May 1999.

Shuichi Ohsaki, a senior portfolio manager at Meiji Yasuda Asset Management, pointed out that the yen's recent weakness against the dollar has reinforced market expectations of a September rate hike. He noted that investors now focus on the pace of BOJ rate hikes rather than the terminal rate.

The BOJ is expected to raise policy rates by 25 basis points to 1.25% at its October meeting, with a 95% chance of this happening, according to market expectations. Swap rates also indicate a 50% probability of another hike to 1.5% at the December meeting.