(Bloomberg) -- Bank of Japan Governor Kazuo Ueda indicated that he has no major problem with long-term bond yields rising to the highest level since 2012, saying they should be guided by markets. 

“Long-term bond yields are determined by financial markets in principle,” Ueda told reporters near Stresa, Italy after the conclusion of a Group of Seven meeting of finance chiefs and central bankers. “I will continue to carefully monitor moves in the market.”


Japan’s 10-year yields hit a 12-year high Friday amid lingering speculations that the BOJ will raise interest rates further. Ueda’s neutral remarks suggest that yield moves — at least so far — don’t meet conditions that the BOJ has pledged to act on in the event of a sharp increase. 

During a joint press conference of about 15 minutes with Finance Minister Shunichi Suzuki, Ueda didn’t talk about the rate path or a chance of cutting bond purchases at a next policy meeting in June as some analysts expect. 

After ending a massive monetary easing program in March, the BOJ no longer uses bond purchases as a policy tool. Traders still pay close attention to it, given the central bank’s dominant presence — it wons roughly half of government debt.

Sitting next to Ueda, Suzuki said the rise in bond yields highlights the need to improve Japan’s fiscal situation. The nation’s debt ratio stands at about 250% of economic output, the highest among developed economies. 

“We must be acutely aware that the world of positive interest rates has come,” Suzuki said. “We will make progress in restoring fiscal health with more sense of urgency than ever.”  

Suzuki — who is charge of deciding currency interventions — signaled G-7 finance chiefs understand Japan’s issues by noting that his peers shared a view that excess volatility in foreign exchange rates are harmful to the economy.

The yen dropped to a three-week low Thursday, highlighting persistent pressures on the currency even after the government is suspected of conducting interventions on April 29 and May 2.  

Suzuki said he didn’t hold a bilateral with his US counterpart Janet Yellen during the G-7 gathering. Masato Kanda, Japan’s top currency official, said Friday that the country is in close contact with the US in particular, indicating no need for a meeting this time.  

Earlier this week, Yellen said currency intervention should be rare and well flagged in advance. 

--With assistance from Kamil Kowalcze, Alessandra Migliaccio, Viktoria Dendrinou, William Horobin, Jorge Valero and Tom Rees.

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