(Updates prices, adds BOJ comment in 5th paragraph.)
By Rocky Swift
TOKYO, April 10 (Reuters) - Japan’s five-year government bond yields hit a record high at the end of a volatile week of trade on Friday, as investors gauged government and central bank responses to economic headwinds brought on by the Middle East crisis. The five-year Japanese government bond (JP5YTN=JBTC) yield rose 3.5 basis points to 1.86%. The benchmark 10-year yield (JP10YTN=JBTC) advanced 4 bps to 2.43%, matching a 27-year high reached earlier in the week. Yields move inversely to bond prices. Government bond yields have been rising around the world as the six-week-long war in Iran spiked oil prices and raised inflation risk, while the ceasefire reached earlier this week remained fragile. All eyes are on talks in Pakistan this weekend, as the U.S. and Iran hold their first round of peace talks. In Japan, expectations are rising that the government will expand stimulus to support the economy, further straining the country’s already indebted balance sheet. Wholesale inflation jumped 2.6% in March, data showed on Friday, adding to pressure on the Bank of Japan to accelerate interest rate hikes.
BOJ Deputy Governor Ryozo Himino said in parliament that the central bank will guide monetary policy with an eye on the overall economic impact of the Middle East conflict.
Interest rate swaps on Thursday indicated a 58% chance of a rate hike this month, slightly higher than the day before, according to Tokyo Tanshi data.
The two-year yield (JP2YTN=JBTC) , the one most sensitive to BOJ policy rates, increased 1.5 bps to 1.4%.
“Speculation is likely to grow that the BOJ will soon issue a message if it intends to raise rates in April,” Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note. “But given the variable of the war this time around, the BOJ needs to keep its options open until the very end.”
The 20-year JGB yield (JP20YTN=JBTC) climbed 4.5 bps to 3.330%, while the 30-year yield (JP30YTN=JBTC) added 2 bps to 3.620%.

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Reuters

CSOP NIKKEI225

FI2 CSOP NIKKEI

Mitsubishi UFJ Financial Group, Inc.

Japan Agricultural Cooperatives Group

Asset Management One Co., Ltd.

Japan's 5-year bond yields peak as Iran war drives inflation, stimulus bets