Japan’s 10-year government bond yield declined toward 1.5% on Monday, extending its pullback from the 16½-year highs reached last week, as mounting concerns over new U.S. trade tariffs drove demand for safe-haven assets.
Japan 10-year yield declines on safe-haven demand
Investor caution deepened after President Donald Trump reiterated plans to implement reciprocal tariffs on all countries and reportedly urged his advisers to adopt a more aggressive trade strategy. Market participants fear that escalating trade tensions could disrupt global supply chains and dampen economic growth, prompting a shift toward lower-risk assets like Japanese government bonds.
Domestically, investors weighed a mixed batch of economic data. Japan’s industrial production rose more than expected in February, suggesting some resilience in the manufacturing sector. However, retail sales fell short of market forecasts, highlighting ongoing challenges in consumer spending despite rising wages.
BoJ may continue normalizing monetary policy
On the monetary policy front, the Bank of Japan’s March meeting summary reinforced expectations that policymakers are inclined to continue normalizing monetary policy, provided that their economic and inflation outlook remains on track. Central bank officials emphasized that wage growth and steady consumer spending are sustaining price gains, which could justify further rate hikes in the coming months. Still, some policymakers acknowledged lingering uncertainties, including the impact of external risks such as global trade disputes and financial market volatility, which could influence the pace of policy tightening.
