Japanese government bond yields rebounded and inflation data sparked cautious sentiment on central bank policy normalization

(1) Japanese government bond yields rebounded on Tuesday after domestic inflation data unexpectedly higher than expected, reinforcing confidence that the Central Bank is expected to exit negative intrerest rates this spring. (2) Japan's benchmark 10-year government bond yield rising 1 basis point to 0.695%. (3) The two-year Treasury yield rising 1.5 basis points to 0.170%, the highest since July 2011. (4) Japan's core inflation rate slowed for the third consecutive month in January, but was higher than market expectations and on par with the Central Bank's 2% target level. The core consumer price index (CPI) rose 2.0% year-on-year in January, compared to the consensus forecast of a 1.8% increase. (5) Ryutaro Kimura, fixed income strategist at AXA Investment Management, noted that the latest inflation report "made market participants more cautious about the possibility of the Central Bank of Japan lifting its negative Intrerest Rate policy at its March meeting." ” (6) However, he added that with the 10-year Intrerest Rate still hovering around 0.7%, investors still seem to be betting that monetary policy will remain relatively accommodative even after normalization. (7) Japan's Central Bank Governor Kazuo Ueda said on Thursday that Central Bank expects the Japanese economy to likely go through a positive cycle in which job growth and rising wages will drive moderate inflation rise. Sources familiar with the central bank's thinking say the central bank is on track to end negative intrerest rates in the coming months