Yields on Japan's medium and short-term government bonds continue to rise, reflecting the market's transformation of the energy shocks brought about by geopolitical conflicts more directly into a repricing of inflation and policy rate paths. The five-year bond yield rose to a record high of 1.770% on Friday, the 10-year yield climbed to 2.300%, and the two-year yield had previously reached the highest levels in nearly 30 years, indicating a significant increase in market sensitivity to the Bank of Japan's policy outlook.
Amid the backdrop of the Middle East war driving up oil prices and the yen under pressure, the trading logic in Japan's bond market has shifted from merely observing domestic economic data to also tracking external risk spillovers. Strategists generally believe that oil, exchange rates, and war news flows will continue to determine the short-term direction.
