Japan’s 10-year bond yield hits BOJ’s upper limit after US CPI shock

JAPAN'S 10-year government bond (JGB) yields hit the upper limit of the Bank of Japan's (BOJ) target on Wednesday (Sep 14), 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 per cent."

The 10-year JGB yield rose 1 basis point to 0.250 per cent, its highest since Jun 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 per cent 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 2-year Treasury notes spiking to an almost 15-year high.

In Japan, the 5-year yield rose 1.5 basis points to 0.045 per cent.

The 2-year JGB yield was flat at minus 0.080 per cent.

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

The 40-year JGB yield fell 4 basis points to 1.340 per cent.

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

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