Japan Yields Ease After Strong Auction Amid Energy-Driven Inflation Concerns

Japan's government bond yields eased on Tuesday after a strong auction, but domestic yields remained near multi-decade highs due to concerns over energy-driven inflation.

The 10-year government bond yield slipped to around 3.08%, retreating from 30-year highs. The latest 40-year bond auction drew its strongest demand since 2020, with a bid-to-cover ratio of 3.1, up from 2.82 at the previous auction and above the 12-month average of 2.67.

The 40-year yield traded above 4.2%. Despite the pullback, yields stayed near multi-decade highs as persistent concerns over energy-driven inflation fueled expectations that the Bank of Japan could quicken its pace of monetary tightening.

A former BOJ official suggested that the central bank could raise its benchmark rate for a second straight month at its October meeting, citing elevated inflation risks.