Japan 10Y Yield Falls as BOJ Holds Rates

Japan’s 10-year government bond yield fell below 2.8% on Friday, approaching its lowest level in nearly three months after the Bank of Japan maintained its policy rate at 1.25%, in line with market expectations. However, the central bank signaled that underlying inflation has finally reached its 2% target, potentially paving the way for a rate hike in December. The decision was reached by an 8-1 vote, with board member Hajime Taka dissenting in favor of raising rates to 1.5%, arguing that the economic environment has entered a new phase that calls for a faster move toward a neutral interest rate. Meanwhile, demand for safe-haven bonds strengthened as disappointing earnings from major technology companies reignited concerns about the AI trade and triggered another equity selloff. Additionally, global asset managers are showing renewed interest in Japan’s bond market as improving domestic demand and a more favorable monetary policy outlook increase the appeal of relatively higher yields.