Asian bond yields broadly rose on Monday, with Japanese and South Korean government bonds declining, after U.S. President Donald Trump rejected Iran's latest proposal to reopen the Strait of Hormuz, pushing oil prices higher.

As investors ramped up bets on further rate hikes by the Bank of Japan, the yield on Japan's two-year government bond approached the key 2% threshold. The yield, which is more sensitive to monetary policy expectations, rose as much as 4 basis points to 1.975% on Monday, the highest level since 1995. Yields on other maturities also came under pressure, with the five-year yield rising 3 basis points to 2.43%.

Because BOJ Governor Kazuo Ueda did not provide clear guidance on the pace of future tightening after a widely expected rate hike earlier this month, investors are worried the central bank may be moving too slowly. This has intensified expectations that policymakers may ultimately need to raise rates more aggressively, especially as a hawkish Federal Reserve threatens to keep the U.S.-Japan interest rate gap wide.

Former BOJ monetary policy executive Kazuo Momma said in an interview that the central bank could raise its benchmark rate for a second consecutive month in October. That timeline is earlier than many economists expect. Overnight index swaps show about a 40% chance of an October hike, while a 25 basis point increase in December is fully priced in.

Analysts noted that a tougher test may come at Wednesday's two-year bond auction, with the market widely expecting the BOJ to raise rates in December and some analysts even seeing a possibility in October. This could deter buyers until yields reach at least 2%, especially if Thursday's Tankan survey reinforces expectations for further monetary tightening.

The weak yen has exacerbated concerns about tighter monetary policy. U.S. President Donald Trump expressed concern about the yen's exchange rate during a recent meeting with Japanese Prime Minister Sanae Takaichi, while Japanese Finance Minister Satsuki Katayama said Takaichi is "not an inflationist," seeking to ease concerns that the government will pressure the BOJ to keep rates low.

SMBC Nikko Securities strategists including Ataru Okumura said in a report that as politicians at home and abroad increasingly focus on the weak yen, trades betting on the BOJ accelerating monetary tightening are heating up. They said fiscal expansion in major economies and rising commodity prices could also strengthen expectations that Japan will eventually need to tighten monetary policy to curb inflation.

South Korea's three-year government bond yield rose to its highest level since November 2022, joining a global selloff, as elevated oil prices sparked inflation concerns, with the yield climbing 11 basis points to 4.11%. Local markets were closed Thursday and Friday, during which the yield on the longest-dated U.S. Treasuries climbed to its highest level in more than two decades.

NH Investment & Securities fixed-income analyst Kang Seungwon said: "The surge in South Korean government bond yields shows that this is not just a U.S. problem, but also that the market is increasingly worried the Bank of Korea will have to raise rates further." Kang also said that if the Fed raises rates for a second consecutive time in October, it will likely prompt the BOK to hike in November.

So far this year, South Korea's bond market has performed weakly as ongoing conflict in the Middle East has pushed oil prices higher, fueling concerns about accelerating inflation in a country heavily dependent on energy imports. The BOK has raised rates twice in a row, after an unprecedented boom in the semiconductor industry drove South Korean economic growth stronger than expected, further exacerbating price pressures. The BOK held a market assessment meeting on Monday to evaluate global financial conditions during the Sept. 24-27 holiday period. In a statement after the meeting, the central bank said authorities will closely monitor markets because volatility may widen.