Japan 10-year yield at highest since 2008 on bets for BOJ hikes #JapanFinance

(Bloomberg) — Japan’s benchmark 10-year government bond yield rose to its highest since 2008 on Monday, at a time when Treasury yields ticked lower again, underscoring expectations that the Bank of Japan (8301.T) will keep hiking interest rates.

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The yield climbed to a high of 1.575% as data on base pay showed the fastest gain in more three decades, supporting a path of continued gradual hikes from the BOJ. Adding to the momentum was an auction of five-year debt that saw sluggish demand as some investors hold off buying now on the view that rates will keep going up.

READ: Japan Sees Fastest Base Pay Gains in 32 Years in Boost for BOJ

The moves in Japan are in contrast to US Treasuries, which rallied across the curve as President Donald Trump’s policies cast uncertainty over the economic outlook.

While BOJ officials are said to be leaning toward keeping interest rates unchanged at the next meeting that concludes on May 1, overnight index swaps show an 85% chance of a rate hike by the July gathering and a certainty by September.

JPMorgan Chase & Co. (JPM) recently revised up its forecast for the 10-year JGB yield to 1.7% from 1.55% by year-end. Some Japanese investors expect the rate to climb as high as 2%, which would likely relegate China’s sovereign debt to the lowest yielding of major markets.

“There’s already some expectations that the BOJ may raise rates earlier than expected, and people are starting to think that the policy decision in May will not be smooth-sailing,” said Takashi Fujiwara, head of fixed income at Resona Asset Management.

—With assistance from Masahiro Hidaka.

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