TOKYO, - The two-year Japanese government bond yield rose to a 31-year high on Monday amid rising bets on central bank rate hikes and an uncertain environment for debt auctions later in the week.
* The two-year yield, the one most sensitive to Bank of Japan policy rates, added 0.5 basis point to 1.730%, a level not seen since April 1995. The benchmark 10-year JGB yield climbed 1 bp to 2.935%. Yields move inversely to bond prices.
* The U.S. central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%, Federal Reserve Chairman Kevin Warsh said on Friday, coming closer than he has to acknowledging interest rate hikes may be needed.
* Japan's Ministry of Finance is due to auction 10-year JGBs on Tuesday and 30-year debt on Thursday.
* "If the Fed tightens monetary policy further to curb inflation, the environment for the Bank of Japan and the JGB market will become increasingly challenging," Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note. "It is unclear whether investor demand will materialise for this week's 10-year and 30-year bond auctions."
* Data on Friday showed the Tokyo consumer price index rose in August, bolstering the case for a BOJ interest rate hike next month.
* The CPI data "really reinforces a more hawkish stance from the BOJ," ANZ's head of FX research, Mahjabeen Zaman, said.
* "We now expect the BOJ to hike by 25 basis points in the September meeting followed by consecutive moves over the next quarters, taking the terminal rate to 1.75%," she added.
* The 30-year JGB yield rose 1.5 bps to 4.135%.
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