JGB yields rise ahead of two-year auction as yen weakness weighs

By Rocky Swift

Japanese government bond (JGB) yields rose on Tuesday ahead of a sale of two-year notes, as inflation concerns and a soft yen weighed on sentiment.

Here are a few details:

• The benchmark 10-year JGB yield (JP10YTN=JBTC) rose 2 basis points (bps) to 2.650%. The 20-year yield (JP20YTN=JBTC) climbed 3 bps to 3.580%. Yields move inversely to bond prices.

• U.S. Treasury yields edged higher overnight as crude prices advanced amid Middle East tensions and ahead of key U.S. jobs data. The yen fell to 162-per-dollar level on Tuesday, the weakest point since 1986.

• "Selling is expected to dominate Japanese bond market on Tuesday," Hiroshi Watanabe, a senior economist at Sony Financial Group, said in a note. "With the dollar-yen exchange rate approaching 162, a level not seen in about 40 years, concerns are likely to grow over the risk of inflation exceeding expectations due to the Bank of Japan's delay in raising interest rates further."

• The Ministry of Finance will sell about 2.8 trillion yen ($17.26 billion) in two-year notes later in the session.

• Inflation concerns persisted in Japan, driven by higher energy costs and upstream price pressures, while expectations for further BOJ tightening remained elevated following its June rate hike.

• Prime Minister Sanae Takaichi's administration appointed Ayano Sato, seen as an advocate of loose monetary policy, as a central bank board member on Tuesday.

• The two-year yield (JP2YTN=JBTC), the one most sensitive to Bank of Japan policy rates, held steady at 1.395%, while the five-year yield (JP5YTN=JBTC) rose 1 bp to 1.880%.

($1 = 162.2300 yen)