Risk of Japan interest rate spike increases as BOJ softens grip

TOKYO – The Bank of Japan has begun easing its long-standing tight control over the country’s bond market, gradually allowing the private sector to set prices. But government bond issuance will not decrease, creating the risk of an unexpected rise in interest rates during this transition.

Just after the BOJ rebalanced its short- and long-term interest rate trades, known as yield curve control, on Thursday, an auction took place for 10-year Japanese government bonds, whose yields serve as a benchmark for long-term interest rates. The results were a safe start, with the highest bid yield of 0.915%, in line with market expectations.