Written by Kevin Buckland
TOKYO (Reuters) – Yields on Japanese government bonds rose to multi-year highs on Friday after interest rates at the Bank of Japan rose as expected and raised inflation expectations.
Share previous average gains up 0.26% to 40,062.48 as of 0405 GMT, after ending the morning session up 0.6%.
The yen was 0.5% stronger at 155.32 per dollar, after initially swinging between small gains and losses immediately after the decision, which came near the end of the stock market's midday period.
The two-year yield rose an additional half a point (BP) after the policy announcement to be 1 basis point higher at 0.705% on the day, a level last seen in October 2008. The five-year yield rose to 0.895 to 0.895%, the highest since December 2008.
The BOJ team raised short-term lending rates by a quarter to 0.5%, which had already been priced in in money markets after central bank officials, including Governor Kazuo Ueda, indicated that policy tightening was on the table.
In its quarterly Outlook report, the board raised its forecast for core consumer inflation to 2.4% in fiscal 2025 before slowing to 2.0% in 2026. In the previous projection made in October, it expected inflation to reach 1.9% in both fiscal 2025 and 2026.
Focus Investor now sits on Ueda's press conference, scheduled for 0630 GMT, for clues to the pace of further tightening. The market is currently priced to rise another quarter point by the end of the year.
“I expect the rate to be held at a lower for at least the next six months,” said Kota Suzuki, an asset management strategist at Nomura, with the pace broadly maintained with the upside of this cycle so far.
“The central bank will be more cautious from now on as it will carefully assess the economic situation and the impact of rising interest rates.”
Early gains in Japanese stocks came on the back of a 0.5% rise in the US S&P 500 ( ) overnight to mark its first record close since December 6.
The yen was supported by comments from US President Donald Trump that he believes he can reach a trade deal with China and avoid additional tariffs.
