27.07.202602:37:07UTC+00Japan 10-Year Yield Eases as Oil Prices Retreat

Japan’s 10-year government bond yield fell to around 2.76% on Monday, pulling back from two-week highs as oil prices declined. The retreat in crude followed a weekend pause in mutual strikes by the US and Iran, amid renewed diplomatic efforts.

Japan’s heavy dependence on Middle Eastern oil imports keeps its economy highly exposed to supply disruptions and sharp movements in crude prices. Domestically, public support for Prime Minister Sanae Takaichi has weakened, as the government’s attempts to curb inflation continue to fall short of household expectations.

Earlier this month, Japanese bond yields climbed to their highest levels in three decades on the back of a deteriorating fiscal outlook. Takaichi’s administration has unveiled a large-scale spending package that risks further increasing the country’s already substantial debt burden. At the same time, markets are pricing in a quicker pace of monetary tightening by the Bank of Japan, as stubborn inflation and a persistently weak yen reinforce expectations for additional interest rate hikes.