Benchmark 10-year government bond yields in Japan fell below 1 per cent yesterday for the first time in seven years as the yen’s climb to an eight-month high raised expectations of additional easing by the country’s central bank.

Ten-year JGB yields dropped to 0.995 per cent, dropping below the 1 percentage point threshold for the first time since August 2003. It is only the third time that benchmark 10-year JGB yields have traded at less than 1 per cent, following a period in 1998 and another in 2002-2003. Forty-year JGB yields also fell to an all-time low of 1.73 per cent.

The yen’s high levels against the dollar prompted speculation about the potential for further easing by the Bank of Japan, that could help ease the yen’s gains. Late last year, soon after the yen rose to Y85, the central bank offered cheap, three-month loans to commercial banks.