According to the Sedaye Sama news website, citing Reuters, the yield on Japan’s 10-year government bonds reached 3.121% in Friday’s trading, a level not seen since 1996. The rise in bond yields comes as investors remain uncertain about the possible ceiling for the Bank of Japan’s interest rates and when the upward trend in bond yields may end.

This situation has led the repatriation of Japanese capital from foreign markets back to the domestic market to proceed cautiously, despite the increasing attractiveness of domestic bonds.

According to the Reuters report, part of Japanese capital is returning to the domestic market, but large investors are still waiting for greater clarity on the path of interest rates and government bond yields before making large-scale transfers of their foreign assets.

Investors’ Uncertainty over Interest Rates

The Bank of Japan raised its policy interest rate last week to 1.25%, the highest level in 31 years. However, two dissenting votes at the central bank’s meeting and the lack of a clear signal regarding further rate increases have made investors cautious about the pace of monetary policy normalization.

The rise in Japanese bond yields has occurred while bond yields in other major economies have also increased.

Reuters reported that the yield on U.S. 10-year Treasury bonds also briefly reached 5.2297% on Friday, the highest level since 2007.

The Yen Remains Under Scrutiny

Developments in the bond market are also closely linked to the condition of the yen. Japan’s finance minister said the government remains prepared to support the national currency. Japanese officials had previously also expressed concern over the yen’s depreciation.

A sustained increase in domestic bond yields could make Japanese assets more attractive to domestic investors. However, the Reuters report emphasizes that until the ceiling for bond yields and the subsequent path of interest rates become clear, large investors will continue to act cautiously. / Mehr News Agency