Japan's 10-year bond yield surges amid BOJ rate speculation

Japan's benchmark government bond yield surged to its highest level since 2013 on Monday, as market expectations grow that the Bank of Japan (BOJ) is committed to normalising interest rates and bolstering the weakening yen.

The yield on 10-year government bonds increased by 2.5 basis points, reaching 0.975 per cent.

This marks the highest yield since Haruhiko Kuroda, the then-newly appointed BOJ Governor, initiated a period of aggressive monetary easing that subsequently drove yields to negative levels.

Kazuo Ueda, who succeeded Kuroda and lifted interest rates for the first time since 2007 in March, has set the stage for this rise in yields.

Investors are now increasingly drawn to long-term debt, with yields on 20-year and 30-year bonds also climbing to their highest levels in a decade.

This trend is prompting Japanese investors to allocate more of their funds into domestic debt securities.

Market participants are closely analysing economic data and BOJ policy signals to anticipate the central bank's next moves.

Pacific Investment Management Co. (PIMCO) predicts the possibility of three more rate hikes this year.

Similarly, Ales Koutny, Vanguard Group Inc.'s head of international rates, forecasts rates could climb to approximately 0.75 per cent by the end of the year.

The rise in yields reflects broader expectations that the BOJ will continue its gradual shift away from the ultra-loose monetary policies that have characterised the past decade.

This shift aims to address the challenges posed by a struggling yen and to align Japan's monetary stance with global trends.

The market's reaction indicates a turning point for Japan's financial landscape, where higher yields may attract more investment into government bonds, potentially stabilising the yen and supporting the economy's recovery efforts.

(With inputs from Bloomberg)