The Bank of Japan Governor Ueda hints at interest rate hikes, causing fluctuations in the global bond market... Yen strengthens and U.S. interest rates rise.

Source: BlockMedia Original Title: Ueda's remarks as Governor of the Bank of Japan shake the global bond market… Yen strengthens, U.S. interest rates rise Original Link: The Bank of Japan (BOJ) Governor Kazuo Ueda hinted at the possibility of a rate hike in December, causing global bond yields to rise sharply. Japanese government bond yields reached their highest level in 17 years, and U.S. Treasury yields also increased in tandem. With the yen continuing to strengthen, concerns are growing that higher yields on Japanese assets could lead to capital outflows from U.S. stocks and bonds.

According to Market Watch, Governor Ueda mentioned at a business meeting held in Nagoya that “we will review the pros and cons of raising the benchmark interest rate at the monetary policy meeting that ends on December 19,” indicating the possibility of a rate hike within the year. This is the first official statement suggesting further tightening since the policy rate was raised from 0.25% to 0.5% in January. The Bank of Japan has maintained an ultra-low interest rate policy since 1999, and particularly since 2016, it has implemented negative interest rates to maintain market liquidity.

Immediately after President Ueda's remarks, the yield on Japan's 2-year government bonds surpassed 1% to reach 1.021%, while the yield on 10-year bonds surged to 1.879%, marking the highest level in 17 years. At the same time, in the foreign exchange market, the yen showed a bullish trend, rising approximately 0.4% against the US dollar.

The sharp rise in Japanese government bond yields has exerted selling pressure on the global bond market. The yield on the U.S. 10-year Treasury rose by 7 basis points from the previous day to reach 4.093%, while the 30-year yield also closed higher by more than 7 basis points at 4.741%. The bond yields of major countries, including France, Italy, and Australia, also increased in tandem. Bond yields move in the opposite direction to prices, and a rise in yields indicates a sell-off in bonds.

The US stock market also closed lower. The Dow Jones Industrial Average fell by 0.90%, the S&P 500 index decreased by 0.53%, and the Nasdaq index dropped by 0.38%, ending a five-day streak of gains. Investors reacted sensitively to uncertainties that capital could leave the US market due to the interest rate hike issue from Japan.

Ryan Jacobs, the founder of Jacobs Investment Management based in Florida, stated that “the Bank of Japan is indicating the end of its ultra-loose monetary policy that has lasted for decades” and explained that “the rise in Japanese yields and the strengthening of the yen could diminish the attractiveness of U.S. assets.”

Until recently, the market had focused on the fiscal expansion policy of Japan's first female Prime Minister Sanae Takaichi's administration, anticipating a gradual rise in Japanese government bond yields. However, the remarks made by Governor Ueda on this day highlighted new monetary policy factors, which are evaluated as another catalyst for the rise in Japanese bond yields.

Daniel Tenenhauser, a Senior Macro Analyst at Interch Capital Markets, analyzed that “the market expected the BOJ to be cautious under the new Prime Minister of Japan, but rather the possibility of a swift decision has emerged.” He added, “With the yen still undervalued, the BOJ's hawkish stance could induce a reassessment across global exchange rates and the bond market as a whole.”

Meanwhile, in the United States, expectations for a rate cut by the Federal Reserve ( Fed ) have already been largely priced in, and recent analyses suggest that there have been sell-offs in long-term bonds and position liquidations. Additionally, as President Trump is increasingly likely to nominate National Economic Council Chairman Kevin Hassett as the next Fed Chair, concerns about future inflation pressures seem to have affected the market. Chairman Hassett is considered to be more favorable toward rate cuts.