Japanese government bonds staged a broad rebound on Tuesday, with yields across the curve trending lower, reversing early session losses driven by inflation concerns following market speculation that the Bank of Japan is considering pausing its bond purchase tapering plan.

According to informed sources, the Bank of Japan is contemplating maintaining its current bond-buying scale beyond the next fiscal year, suggesting its quantitative tightening process, including tapering purchases, may enter a period of stagnation. Stimulated by this news, the benchmark 10-year Japanese Government Bond yield hit an intraday high of 2.74%, its highest in nearly three weeks, before quickly retreating by 5 basis points to 2.665%. For other maturities, the 20-year and 30-year bond yields fell by 7 basis points and 6.5 basis points to 3.565% and 3.870% respectively. The policy-rate-sensitive 2-year bond yield edged down 0.5 basis points to 1.41%.

Previously, due to persistent market concerns over the inflation outlook and ahead of a 30-year bond auction scheduled for Wednesday, Japanese government bonds faced broad pressure in Tuesday's early trading. Takayuki Miyajima, a senior economist at Sony Financial Group, analyzed that the recent rise in Japanese interest rates is primarily driven by market anxiety over inflation and concerns about the central bank's slow response to price pressures, rather than simple supply-demand dynamics. Currently, rising international energy prices due to instability in Iran are amplifying Japan's imported inflation risks. Bank of Japan Governor Kazuo Ueda has previously issued a clear warning that an energy shock could translate into long-term pressure through wage growth and the solidification of inflation expectations.

Against this backdrop, major global bond markets have also generally weakened recently due to high inflation and tightening expectations, with US Treasury and eurozone government bond yields continuing to rise. This resonance effect in international financial markets has exerted further upward pressure on the Japanese bond market.

Currently, expectations in international financial markets for the Bank of Japan to follow up with tightening policies are intensifying. The latest research data from Tokyo Tanshi shows that the implied probability of a rate hike in the interest rate swap market has risen to 93%. The market widely anticipates that the Bank of Japan will raise interest rates by 25 basis points at its monetary policy meeting on June 15-16, bringing the policy rate to 1%.

Addressing the current macroeconomic environment and financial market volatility, Japan's Minister of State for Economic Revitalization, Minoru Kiuchi, stated on Tuesday that the government will continue to closely monitor interest rate trends and their profound impact on the real economy. Kiuchi emphasized the hope that the Bank of Japan and the government will maintain close communication and collaboration to steadily and sustainably achieve the 2% inflation target.