Japan bond yields surge on BOJ tightens policy

Short-term Japanese government bond yields reached 15-year highs, and Japanese bank shares surged on Wednesday as the Bank of Japan raised interest rates for the second time since 2007 and announced a reduction in its monthly bond purchases.

The two-year JGB yield surged by eight basis points to 0.45 per cent, the highest level since April 2009, while the five-year yield increased by 8 bps to 0.665 per cent, the highest since November 2009.

Japanese bank shares soared, with the Tokyo Stock Exchange’s banking index rising 4.7 per cent. Lenders helped the Nikkei share average reverse earlier declines.

Exporters’ shares rebounded as the yen stabilised around 153 per dollar, following volatile trading post-policy announcement.

Chip-sector shares surged on news that certain Japanese companies would be exempt from US restrictions on semiconductor equipment exports to China.

The BOJ raised the key rate target to 0.25 per cent from almost zero and introduced a quantitative tightening (QT) plan to reduce monthly bond purchases to three trillion yen ($19.6 billion) from the current six trillion yen by early 2026.

Investors were prepared for the change following reports in local media that the central bank was considering it. JGB yields started rising from Wednesday’s opening.

The 10-year JGB yield increased by 6 bps to 1.06 per cent, below the recent peak of 1.1 per cent reached three times in the last two months.

Higher rates are expected to enhance lending margins and increase investment income, benefiting banking shares from the BOJ’s policy decision.

The Nikkei ended the day up 1.5 per cent at 39,101.82, recovering the psychologically important 39,000 level for the first time in a week. The broader Topix also finished up 1.5 per cent.

Japanese lenders attracted larger foreign investment flows than other sectors. Banks received an estimated 472 billion yen of net stock purchases in the year to July 25, outpacing flows into the automobiles and components sector.

Most automakers rebounded, but Toyota Motor sagged 1.6 per cent due to corrective orders from Japan’s transport ministry.

Semiconductor-sector stocks surged late in the trading session, with Tokyo Electron climbing 7.4 per cent and Screen Holdings soaring 9.2 per cent.

Attribution: Reuters