Short‑dated Japanese government bonds (JGBs) fell in price terms as market participants increasingly anticipate a rate increase by the Bank of Japan. The shift reflects growing conviction that inflation pressures will force a policy shift.

Last week the BOJ kept policy unchanged, yet its Outlook Report and Governor Ueda's press conference adopted a noticeably hawkish tone, highlighting upside inflation risks and the possibility of a faster tightening pace. Two analysts from J.P. Morgan Japan Markets Research noted the change in a research note.

The J.P. Morgan team maintains an October rate‑hike forecast but warns of a higher chance of a September move should yen weakness accelerate. The two‑year JGB yield rose 3.5 bps to 1.540%, its highest intraday level since May 1995, according to data provider Quick.

The move underscores how quickly expectations are evolving ahead of the BOJ's next policy meeting, with market participants now pricing in tighter monetary conditions than previously anticipated.