Japan's Bond Yields Soar Despite Weaker GDP

Japan's economy grew at a slower-than-expected pace in Q2, but investors are still pricing in a potential rate hike by the Bank of Japan. The country's 10-year government bond yield hit a 30-year high of 2.925% as markets bet on an increase in interest rates.

Despite the softer GDP growth, which ran at 1.1% annual pace in April-June, traders focused on inflation risks and hawkish Bank of Japan messaging. The economy's resilience abroad, particularly in exports, also kept price pressures in focus.

The rising bond yield can limit the government's ability to provide subsidies for households affected by a weak yen and higher fuel import costs. This could lead to increased pressure on household bills and weigh on consumption, which was already slightly negative in Q2.