MUFG’s Lee Hardman notes that rising long-term JGB yields, driven by inflation risks linked to the Middle East conflict and hawkish BoJ commentary, are reinforcing expectations for a near-term policy rate increase. He highlights that a potential BoJ hike as early as June could support the Japanese Yen and reduce pressure for further FX intervention.

Rising JGB yields bolster yen outlook

"The ongoing move higher in yields in Japan has attracted more market attention overnight as well after the 30-year JGB yield rose above the high from 20th January and hit a fresh high of 3.93%."

"The recent sell-off appears to have been driven more by building inflation risks related to the Middle East conflict."

"The sell-off overnight has been encouraged by hawkish comments from BoJ board member Kazuyuki Masu who indicated that he is moving closer to voting for a rate hike."

"He stated “if statistical data do not indicate clear signs of an economic downturn, I believe it is desirable to raise the policy rate at the earliest stage possible”."

"His comments have reinforced market expectations for the next BoJ hike to be delivered as soon as the next policy meeting in June."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)