Japanese Bond Yields Hit Multi-Decade Highs Amid BOJ Rate Hike

Japan's 10-year bond yield has hit its highest level since 1996 after the Bank of Japan raised interest rates last week. The yield rose to 3.075%, with the five-year yield reaching a record 2.375%. This move follows the BOJ's decision to raise its policy rate from 1% to 1.25%.

The rising Japanese borrowing costs could put pressure on yen-funded trades, although there are no clear signs of a disorderly carry trade unwind. Bitcoin and other cryptocurrencies are already facing pressure from US Treasury yields above 5%, a stronger dollar, and growing expectations for another Fed rate hike.

According to Reuters, BlackRock had earlier examined whether Japanese institutions could begin keeping more capital at home as returns on JGBs become more competitive. Higher domestic yields could encourage Japanese institutions to retain more capital at home, although it may not lead to a large liquidation of existing overseas bond holdings.