Japan’s 10-year government bond yield dropped 5 basis points to 2.1% on Wednesday as the escalating Middle East conflict and rising energy prices complicated the outlook for Bank of Japan monetary policy. The country faces the dual challenge of low growth and elevated inflation driven by external risks, prompting traders to reassess expectations for BOJ rate hikes. However, BOJ board member Ryozo Himino said the central bank will still make necessary policy adjustments even amid market volatility and uncertainty, noting that rates may move toward neutral if underlying inflation accelerates toward the BOJ target. On Tuesday, a sale of 10-year bonds drew stronger-than-expected demand, with the bid-to-cover ratio at 3.3, compared with 3.02 at the previous auction and a 12-month average of 3.23.
