Will Japanese Authorities Intervene as Japanese Government Bond Yields Soar to a 2006 High?

TradingKey - Japan's spring wage negotiations (Shunto) and inflation rate continue to bolster the prospects of the Bank of Japan raising interest rates. Following the 10-year Japanese government bond yield rising to its 2008 high, the yield on 30-year Japanese government bonds has also climbed to a nearly 20-year high.

On Wednesday, March 12th, the yield on 30-year Japanese government bonds rose by 3.5 basis points during intraday trading to 2.615%, the highest level since 2006. Currently, this long-term bond yield stands at 2.57%.

[Chart of the Yield of 30-year Japanese Government Bonds, Source: TradingView]

Experts from Sumitomo Mitsui Financial Group recently stated that as long as the US economy does not enter a recession, the Bank of Japan may raise its policy interest rate from the current 0.5% to 1% this year. If the economic trend continues, the Bank of Japan may raise the benchmark interest rate to 2%, the highest level in 30 years.

This analyst's outlook on interest rates is more "hawkish" than the market consensus. A Bloomberg survey shows that economists expect the terminal interest rate in Japan to reach 1.25%.

The BoJ is set to announce its new interest rate decision on March 19th, and the market unanimously believes that the interest rate will remain unchanged at this meeting. According to a Bloomberg survey, approximately 48% of the respondents anticipate a rate hike in July.

Amid the continuous rise in Japanese government bond yields, the Japanese authorities are working to ease external concerns.

Japan's Minister of Finance stated that rising interest rates will have both positive and negative impacts on the economy, rather than solely negative impacts such as higher debt costs or a slowdown in economic activity.

Kazuo Ueda, Governor of the Bank of Japan, stated that the upward trend in Japan's benchmark interest rate since last year reflects the market's views on the economy and inflation, aligning closely with the BoJ's perspective. He added that only a sudden and exceptional spike might warrant intervention.