Japan's 10-year bond yield rises as market awaits BOJ rate decision

TOKYO, March 18 (Reuters) - Japan's benchmark 10-year government bond yield rose on Tuesday, reversing course as investors awaited the Bank of Japan's policy decision.

The yield JP10YTN=JBTC was up 0.5 basis point (bp) at 1.51%, after slipping 1 bp to 1.495% earlier in the session.

The BOJ is set to keep interest rates steady on Wednesday and discuss just how much of a risk the escalating U.S. trade war poses to Japan's export-reliant economy, which will be key to the timing of its next rate hike.

"The market is moving without a direction as investors are awaiting cues from tomorrow's decision and comments of the central bank," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

"Investors will seek hints for the BOJ's rate hike policy from its view on the U.S. economic outlook," Inadome said.

The two-year JGB yield JP2YTN=JBTC also reversed course from an 0.5 bp decline, rising 1 bp to 0.815%. The five-year yield JP5YTN=JBTC rose 0.5 bp to 1.1%, after declining marginally to 1.09%.

The yields hit levels last seen more than a decade ago earlier this month as bets escalated that the BOJ would raise its policy rate faster and higher on the back of growing wages and rising prices.

Such speculation helped levels of open interest in TONA futures contracts JTOAc1 pegged to the BOJ's overnight call rate JPONMUF=RR to hit a record high this month, according to according to Japan Exchange Group.

The three-month TONA futures launched in May in 2023 and grew rapidly as the BOJ ended the negative rate policy in March 2024 and started raising its policy rate.

The TONA futures maturing in September indicate the BOJ's overnight call rate to be at 0.6275% and the one maturing in December at 0.725%.

The 20-year JGB yield JP20YTN=JBTC fell 1 bp to 2.27% and the 30-year JGB yield JP30YTN=JBTC fell 0.5 bp to 2.6%.