U.S. Treasury yields shot higher on Monday after military strikes in Iran by the U.S. and Israel, followed by counter-strikes by Tehran across the Middle East, sparked a jump in oil and gas prices and raised fears about escalating inflation.
Japanese government bond yields surged Tuesday. Fears of a prolonged war involving Iran, the US, and Israel are driving up energy prices. This is expected to accelerate global inflation. Japan, heavily reliant on energy imports, faces significant impact. Market players anticipate the Bank of Japan may raise interest rates sooner than expected to combat rising prices.
“The rise in U.S. Treasury yields weighed on JGBs,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
Japan, which relies heavily on energy imports, would be hit hard by increases in energy prices, raising bets that the Bank of Japan would have to hike interest rates early to counter inflation, some market players say.
On Monday, BOJ Deputy Governor Ryozo Himino said market volatility would not prevent a rate increase, but he gave no hints on timing, saying the decision would depend on the inflation rate stabilising around the central bank’s 2% target.
JGB yields fell sharply in the previous session in part because investors bought safe-haven assets in the wake of the Iran war. The Japanese government is scheduled to auction about 260 billion yen ($1.65 billion) worth of 10-year bonds later on Tuesday.
The 30-year yield rose 3.5 bps to 3.31%. ($1 = 157.4900 yen).