Japan bonds rally as retreating oil prices curb inflation concerns

By Rocky Swift

TOKYO, March 10 (Reuters) - Japanese government bonds rallied on Tuesday as signs of stabilisation in oil prices pared back concerns of inflation pressures on the economy.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 3.5 basis points (bps) to 2.150%. Yields move inversely to bond prices.

Super-long JGB yields surged on Monday as the U.S.-Israeli war with Iran sparked a jump in energy prices and speculation that the Bank of Japan may need to raise interest rates to contend with the impact of higher import costs.

Japanese Finance Minister Satsuki Katayama said on Tuesday G7 energy ministers are expected to meet tonight to discuss the process of releasing oil reserves. U.S. President Donald Trump said the war in the Middle East could be over soon, even as Iran's hardliners staged a show of loyalty to new Supreme Leader Mojtaba Khamenei.

"In today's JGB market, yields are likely to decline further, following yesterday's overseas market trend," Ataru Okumura, a senior strategist at SMBC Nikko Securities, said in a report. "If this situation persists, next week's 20-year bond auction and the 40-year bond auction the week after will take place under quite challenging conditions."

The two-year yield JP2YTN=JBTC, the one most sensitive to BOJ policy rates, decreased 0.5 bps to 1.23%. The five-year yield JP5YTN=JBTC fell 2 bps to 1.600%.

Data on Tuesday showed Japan's economy grew faster than initially estimated in the final quarter of 2025, thanks to rapid business investment.