Japan's five-year bond yield hits record high on bets of early rate hike

By Junko Fujita

TOKYO, Jan 16 (Reuters) - Japan's five-year government bond yield hit a record high on Friday, as a sharp drop in the yen raised expectation for an early interest rate hike from the Bank of Japan (BOJ).

The five-year yield JP5YTN=JBTC rose 1.5 basis points (bps) to a record 1.645%. The two-year bond yield JP2YTN=JBTC rose 1.5 bps to 1.195%, matching the highest level since August 1996 set earlier this month. Bond yields move inversely to prices.

"The yen is struggling to rebound against the dollar and that has raised bets that the BOJ would speed up raising rates," said Yuki Kimura, a bond strategist at Okasan Securities.

A weaker yen tends to raise import costs, potentially accelerating inflation and weighing on consumption.

Some market players expect that the BOJ could raise rates again as early as April, but economists surveyed by Reuters see the central bank likely waiting until July before raising its key interest rate.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 1.5 bps to 2.175%.

U.S. Treasury yields were mostly higher overnight, after stronger-than-expected economic data slightly dented expectations that the Federal Reserve would cut rates in the near term.