JGB yields jump as Iran war raises inflation fears

Japanese government bond (JGB) yields experienced a notable increase on Tuesday, driven by heightened concerns over a prolonged conflict involving the U.S. and Israel against Iran. The benchmark 10-year JGB yield rose by 6 basis points to reach 2.12%, while the two-year and five-year yields also saw increases of 3.5 and 5.5 basis points, respectively. This uptick follows a surge in U.S. Treasury yields after military actions in Iran, which also triggered a spike in global oil and gas prices, sparking fears of accelerating inflation. Japan's heavy dependence on energy imports raises concerns that rising energy costs could compel the Bank of Japan (BOJ) to adjust interest rates sooner than expected, as indicated by Deputy Governor Ryozo Himino. While he acknowledged market volatility, he refrained from providing a specific timeline for potential rate hikes, emphasizing that decisions would hinge on inflation stabilizing around the BOJ's 2% target. The Japanese government is set to auction approximately 260 billion yen worth of 10-year bonds later today, amid these fluctuating market conditions.