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Friday, June 21, 2024

Japan’s 10-Year Bond Yield set to increase amid Potential rate hike

Key Takeaways:

  • Japan’s 10-year government bond yield has reached 0.756%, signaling a normalization after years of stagnant growth and ultra-low interest rates.
  • The Bank of Japan (BOJ) is set to make an important interest rate decision in 10 hours.

After years of stagnant growth and ultra-low interest rates, Japan’s 10-year government bond yield has finally begun to normalize, reaching 0.756% as of March 18, 2024. This comes just 10 hours before the Bank of Japan (BOJ) is set to make an important interest rate decision. The consensus is anticipating a rate hike after 17 years of negative interest rates.

Japan’s Economy

The Japanese economy has been dealing with sluggish growth and deflation since the late 1990s, prompting the BOJ to implement monetary policies, such as quantitative easing and negative interest rates, in an attempt to stimulate the economy. Despite these efforts, Japan’s economic growth remained subdued, with inflation consistently falling short of the central bank’s 2% target.

However, recent signs of a pickup in economic activity, coupled with rising global inflation, have led to speculation that the BOJ may be preparing to shift its monetary policy stance. The rise in the 10-year bond yield is a strong indicator that people are anticipating a potential rate hike, as higher interest rates typically lead to increased borrowing costs and, consequently, higher bond yields.

Monetary Policy

According to the minutes of the BOJ’s Monetary Policy Meeting held on December 18 and 19, 2023, policymakers acknowledged that Japan’s economy had recovered moderately, with corporate profits and business sentiment improving. They also noted that the year-on-year rate of increase in the consumer price index (CPI) had been around 3%.

The BOJ’s statement on monetary policy, released on January 23, 2024, further hinted at the possibility of a policy shift. The central bank maintained its short-term interest rate at -0.1% and its 10-year government bond yield target at around 0%. However, it also stated that it would “patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions” to achieve its 2% inflation target in a sustainable and stable manner, accompanied by wage increases.

Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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