Strong demand at the Japanese 10-year government bond auction has raised market expectations for an interest rate hike to 80%.

Odaily Planet Daily reports that demand for Japanese 10-year government bonds on Tuesday was stronger than the average of the past 12 months, with higher yields attracting investors despite rising market expectations of a near-term interest rate hike by the central bank. The bid-to-cover ratio was 3.59, higher than the 2.97 of the previous auction in November and the 12-month average of 3.20. The auction followed comments from Bank of Japan Governor Kazuo Ueda on Monday, which the market interpreted as increasing the likelihood of a rate hike later this month. Ueda stated that the Bank of Japan would weigh the pros and cons of a rate hike and act appropriately, adding that even after a rate hike, financial conditions would remain accommodative. Currently, the swap market implies an approximately 80% probability of a rate hike at the December 19 policy meeting, while the probability of a rate hike in January has risen to over 90%. In contrast, just a week ago, the probability of a December rate hike was only 36%. Meanwhile, Japan's Ministry of Finance plans to increase short-term debt issuance to help fund Prime Minister Sanae Takaichi's economic stimulus package, increasing the issuance of 2-year and 5-year government bonds by 300 billion yen each and the supply of treasury bills by 6.3 trillion yen. (Jinshi)