JGB yields rise as weak yen drives bets for BOJ rate hike

TOKYO, Dec 17 (Reuters) – Japanese government bond (JGB) yields rose on Tuesday, as a weaker yen drove bets that the Bank of Japan may increase interest rates at its policy meeting this week.

The two-year JGB yield rose 1 basis point to 0.59% and the five-year yield rose 1.5 bps to 0.730%.

“The yields rose because expectations that the BOJ may raise interest rates strengthened due to the yen’s weakness against the dollar,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

The yen fell to as low as 154.34 per dollar earlier in the session before steadying at 154.03, after six straight days of selling as markets have pared chances of a Japanese rate hike this week in favour of a move in January.

Rate-hike expectations eased last week after media, including Reuters, reported that the BOJ might not change policy at the end of its two-day policy meeting on Thursday.

“But the possibility that the BOJ will raise interest rates is not zero,” said Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The 10-year JGB yield rose 1 bp to 1.075%. The yield hit 1.1% earlier in the session, its highest since July 25, which strategists attributed to wrong orders by traders.

“We saw little reasons that the 10-year yield had to rise to that level,” said Inadome.

The 20-year JGB yield rose 0.5 bp to 1.885% and the 30-year JGB yield rose 1 bp to 2.29%.

The 40-year JGB yield rose 1.5 bps to 2.66%. (Reporting by Junko Fujita; Editing by Subhranshu Sahu)