JGB yields track US peers higher as tariff fears ease

By Brigid Riley

TOKYO, March 25 (Reuters) - Japanese government bond (JGB) yields rose on Tuesday, with shorter-end yields touching their highest since October 2008, as the recent risk-off mood eased on hopes of more measured U.S. tariffs.

Concerns about a slate of U.S. tariffs due to take effect on April 2 lessened somewhat as investors took the latest comments from U.S. President Donald Trump as a sign of flexibility, sending Treasury yields drifting upwards on Monday. US/

JGB yields followed suit, with the 10-year JGB yield JP10YTN=JBTC rising 3 basis points (bps) to 1.57%, holding just under recent highs. The benchmark 10-year JGB futures 2JGBv1 fell 0.38 points to 137.46 yen.

The two-year yield JP2YTN=JBTC and five-year yield JP5YTN=JBTC both climbed to their highest since October 2008, sitting at 0.875% and 1.165%, respectively.

Elsewhere, minutes of the Bank of Japan's January policy meeting showed policymakers discussed the pace of further interest rate hikes after deciding to increase rates to their highest in 17 years.

Last week, the central bank stood pat on rates and warned of heightening global economic uncertainty amid changing U.S. tariff policies. Market expectations for additional rate hikes remained intact, however, with many betting on another hike around July.

"Barring an escalation of tariff reprisals and a more adverse economic impact on Japan than expected, the BOJ is unlikely to halt progress toward a gradual increase in interest rates," said Ryutaro Kimura, a fixed income strategist at AXA Investment Managers.

Growing risks that inflation could remain higher than the bank's 2% goal, after a somewhat stronger-than-forecast wage negotiation outcome this month, were likely to keep upward pressure on long-term interest rates, he said.

A continued reduction in the BOJ's purchases of government bonds could also contribute, he added.

On the superlong end, the 20-year JGB yield JP20YTN=JBTC rose 2.5 bps to 2.3%, while the 30-year JGB yield JP30YTN=JBTC was up 1 bp at 2.605%.