JGB Yields Plummet Amid BOJ Hike Bets Despite Japan's Uncomfortable Inflation Signals

Japanese government bonds (JGBs) saw a surge in demand on Monday, causing key yields to drop even as traders continued to bet on a Bank of Japan rate hike next month.

The move was triggered by a US-led bond rally after the release of a cooler US producer-price report and lower crude oil prices eased inflation worries. This global momentum helped pull the 10-year JGB yield down to 2.855%.

However, the two-year JGB yield, which is more sensitive to domestic policy, also fell to 1.64% after reaching a 31-year high. Investors still see a nontrivial chance of a BOJ hike soon, despite the global influence on longer-dated yields.

Mitsuhiro Furusawa, a former Japanese finance official, suggested that Japan may need to signal faster-than-expected rate increases to slow the yen's decline.