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2026-09-18 17:32:09
[Japanese Government Bond Yield Curve Steepens, Central Bank Rate Hike Hints at Divergence] ⑴ The Japanese government bond yield curve initially flattened before steepening around the time of the central bank's policy statement, as the market interpreted the 25 basis point rate hike as a dovish move. ⑵ The central bank raised the policy rate to 1.25%, the highest since April 1995, citing that economic and price trends were in line with the baseline scenario and the increased risk of inflation exceeding the 2% target. ⑶ The vote on the rate hike was 7-2, with two members appointed by the Takaichi Sanae government advocating for maintaining the rate unchanged. This divergence weakened market expectations for further tightening. ⑷ Some traders believe that the possibility of another rate hike at the October meeting has disappeared, and the probability of a rate hike in December has also decreased. ⑸ The curve flattened briefly in the morning session, with the 2-year yield falling to 1.855%, the 10-year yield to 2.945%, and the 40-year yield to 4.05%. (6) Following the announcement of the decision, the yield curve steepened, with the 2-year yield falling further to 1.82% and the 40-year yield rebounding to 4.14%, a net increase of about 3 basis points from the previous day, partly driven by cautious sentiment surrounding the 40-year auction later this month. (7) Market trading was thin, with participants awaiting the central bank meeting results and preparing for the five-day holiday. Two-way flows of regional accounts were observed in medium-term bonds, and a public account reduced its holdings of 20-year bonds when the yield curve flattened in the morning. (8) The central bank governor did not provide a clear signal regarding the pace of future policy adjustments at the press conference; the market is focused on his subsequent statements. (9) The US Treasury Secretary had previously been pressuring for interest rate hikes to prevent the yen from weakening, but the yen resumed its weakening trend after the central bank meeting. The market is watching whether the US will further pressure for accelerated tightening. (10) Overall, market sentiment leaned towards caution after the interest rate hike. Future focus will be on changes in the central bank's communication stance and the demand for long-term auctions.
