The yield on Japan's two-year government bonds has surpassed 1%, reaching a 17-year high, as the market bets on a Central Bank rate hike in December.

[Block Rhythm] The Japanese bond market has recently made some moves - the two-year government bond yield has broken 1%, which hasn't happened since the 2008 financial crisis. The five-year and ten-year yields have also risen, reaching 1.35% and 1.845% respectively. The yen has also seen a slight increase, touching 155.49 against the dollar at one point.

Behind this is actually the market betting that the Bank of Japan will take action to raise interest rates. The central bank governor Kazuo Ueda recently stated that they would decide based on the situation, but the market has already cast its vote with its feet – the probability of a rate hike at the meeting on December 19 has been priced in at 76%, and it has soared to over 90% for January next year.

Interestingly, the Japanese Ministry of Finance plans to issue more short-term government bonds to fund Prime Minister Kishi Matsumoto's economic stimulus plan. This will likely put pressure on short-term bonds. With the central bank possibly tightening while the government is injecting funds, it's hard to say how this combination will play out. Friends who are paying attention to the yen's movements should keep a close eye, as exchange rate fluctuations significantly impact global capital flows.