Japan considers tweaking BOJ language in economic blueprint as 10-year JGB yield hits 29-year high

Government blueprint revision

Japan's government is considering tweaking language on monetary policy in its annual economic blueprint, the so-called honebuto, to avoid the appearance of putting pressure on the Bank of Japan. A draft released last month had called on the BOJ to align monetary policy with government efforts to boost growth and removed language pledging to improve fiscal health. The Nikkei and Asahi newspapers reported that a revised version would add a phrase stating it is important for the central bank to take appropriate policy "to achieve stable inflation." The addition is seen as a government clarification that it is not infringing on the bank's independence in setting monetary policy.

JGB yield surge

On Wednesday, the yield on the most recent issue of 10-year Japanese government bonds briefly climbed to 2.865 percent in Tokyo interdealer trading, the highest level since May 1997, according to Japan Bond Trading Co. The selloff reflected a mix of global spillovers and domestic unease.

Global triggers

Renewed turmoil in the Middle East rattled debt markets after U.S. Central Command forces said on Tuesday they had begun launching strikes against Iran, following Iranian attacks on vessels in the Strait of Hormuz. The U.S. Treasury Department announced the same day it would revoke a sanctions waiver that had temporarily allowed purchases of Iranian oil. Crude oil futures jumped on supply uncertainty, pushing up U.S. long-term interest rates on inflation concerns, and Japanese bond yields followed suit.

We have begun launching a series of powerful strikes against Iran.

Domestic fiscal and monetary concerns

Beyond the global spillover, JGBs faced selling pressure from worries about Japan's fiscal health and skepticism that the BOJ would raise interest rates quickly enough. The government's initial draft had omitted language on fiscal consolidation, fueling concerns about debt sustainability. The BOJ's cautious stance on rate hikes, even as inflation remains above target, added to the bond market's unease.