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Japan’s 10-year bond yield hits BOJ’s upper limit after U.S. CPI shock

US consumer prices rose in August and underlying inflation accelerated amid rising costs for rents and healthcare
A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020. Photo: REUTERS/file
A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020. Photo: REUTERS/file

TOKYO: Japan’s 10 year government bond yields hit the upper limit of the Bank of Japan’s target on Wednesday, after an unexpected rise in US consumer prices fuelled bets for more aggressive Federal Reserve rate hikes to contain soaring inflation.

US consumer prices rose in August and underlying inflation accelerated amid rising costs for rents and healthcare, giving the Fed ammunition to deliver a third 75 basis point interest rate hike next Wednesday.

“The outcome was fairly shocking to investors, who have been witnessing other strong economic data,” said Ataru Okumura, a strategist at SMBC Nikko Securities.

“There is a caution that the Fed would have to tighten its grip if it wants to contain inflation to 2%.”

The 10 year JGB yield rose 1 basis point to 0.250%, its highest since June 17.

Unlike its peers, the BOJ has maintained its ultra low interest rates to support the economy. Under the yield curve control, the BOJ guides the 10 year JGB yield around 0% and allows it to move 25 basis points on either side of zero.

Overnight, US Treasury yields surged and a recession warning the yield curve inversion widened, with the yield on two year Treasury notes spiking to an almost 15 year high.

In Japan, the five year yield rose 1.5 basis points to 0.045%.

The two year JGB yield was flat at minus 0.080%.

Yields on longer-ended notes fell, with the 20 year JGB yield falling 2 basis points to 0.850% and the 30 year JGB yield falling 4 basis points to 1.180%.

The 40 year JGB yield fell 4 basis points to 1.340%.

Benchmark 10 year JGB futures fell 0.37 point to 148.72, with a trading volume of 19,893 lots.

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