**Japanese 2-Year Bond Yields Rise by 1% for the First Time in 17 Years; Concerns About Yen Carry Trade Unwinding**
(Seoul = Yonhap News) Reporter Jeong-Woo Hwang – On the 1st (local time), Japanese, U.S., and German bond yields surged in anticipation that Japan’s central bank would raise the key interest rate this month.
According to Bloomberg, the 2-year Japanese government bond yield rose by 4.3 basis points to 1.015%. This marks the first time the yield has surpassed 1% since the financial crisis of 2008.
The yield on the 10-year Japanese bond also jumped 6 basis points to 1.865%, reaching its highest level in 17 years.
Japanese bond yields surged as Bank of Japan Governor Kazuo Ueda signaled an impending rate hike.
Governor Ueda stated at a lecture in Nagoya, “We will make a suitable judgment on whether to raise (the rate), adjusting the degree of easing neither too late nor too soon.”
The market interpreted these remarks as an 80% likelihood of the key interest rate being raised by 0.25% at the Bank of Japan’s monetary policy meeting scheduled for the 18th-19th, up from less than 25% just a week ago.
The rise in Japanese bond yields has had a ripple effect on the global bond market.
The 10-year U.S. government bond yield, a global benchmark, surged 7.2 basis points to 4.087%, while the German 10-year bond yield increased by 6.2 basis points to 2.749%.
Matt Miskin, co-chief investment strategist at Manulife John Hancock Investment, told the Financial Times (FT) that “global bonds have shown a butterfly effect in response to the Bank of Japan’s December rate hike signal.”
There are also analyses suggesting that worries about the unwinding of the yen carry trade could have influenced this situation.
Michael Metcalfe, head of macro strategy at State Street Markets, said, “The clearer it becomes that Japanese interest rates are normalizing, the more likely it is for Japanese investors to either repatriate funds from foreign bond markets or at least reduce the scale of their foreign bond purchases.” He added, “This is the disappearance of a key supplier in international finance at a time of soaring bond issuance.”
Bitcoin also plummeted by more than 5%, dropping to the $85,000 level.
Jasper de Maere of the cryptocurrency trading group Wintermute said, “Japan’s low interest rates enabled the yen carry trade, but now that those trades are being unwound, all risk assets have been sold off.”
The rise in Japanese government bond yields has already been underway this year. The 10-year yield has jumped about 80 basis points since the start of the year.
The trend is driven not only by the normalization of the key interest rate but also by factors like the expected rise in national debt and a reduction in long-term bond purchases by institutions such as life insurance companies.