Bank of Japan (BOJ) Governor Kazuo Ueda signaled little urgency in addressing Japan’s surging government bond yields, which have climbed to their highest levels since 2008. Speaking in parliament on Wednesday, Ueda indicated that the rise aligns with market expectations for economic growth and inflation, suggesting no immediate intervention from the central bank.
“My understanding is that the rising trend since last year reflects the market’s views on the economy and inflation, or shifts in interest rates overseas,” Ueda said. “There is no major gap between our views and the market’s.”
His comments suggest the BOJ is unlikely to step into the bond market, even after 10-year benchmark yields breached the critical 1.5% mark, reaching 1.578% on Monday. Since ending its yield curve control program last year, the central bank has maintained that markets should dictate yield movements.
Market-Driven Yield Movements
“One of the biggest factors driving long-term yields is market expectations regarding the outlook for short-term rates,” Ueda said. “It’s natural for the yields to move by reflecting those views.”
Japanese bond yields have continued their upward climb, with 20-year bond yields reaching their highest level since 2008 on Wednesday, while 30-year yields hit levels last seen in 2006. Ueda’s remarks briefly intensified selling pressure in the bond market.
His stance aligns with other Japanese policymakers, including Finance Minister Katsunobu Kato, who on Tuesday acknowledged both positive and negative effects of rising yields.
Rate Outlook and Market Expectations
The BOJ’s policy board is set to meet next week, following its historic decision in January to raise the benchmark interest rate to 0.5%. While most economists do not anticipate further tightening this month, Ueda has repeatedly emphasized that the central bank will adjust borrowing costs if economic projections hold.
A Bloomberg survey released Wednesday showed economists now expect the terminal rate for this tightening cycle to reach 1.25%, up from a previous estimate of 1% and a significant jump from last year’s 0.5% projection.
Despite Ueda’s measured tone, the BOJ continues to monitor bond market conditions closely, given its substantial holdings—still accounting for roughly half of all outstanding Japanese government debt.
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