tokyo<u+2014>the global bond rout could prove a key test for japan, the land of low rates. the yield on japan<u+2019>s 10-year government bond briefly rose above zero on tuesday for the first time in nearly eight weeks , joining a global trend toward higher yields in the wake of donald trump <u+2019>s victory in the u.s. presidential election. the move up is significant because the bulk of japan<u+2019>s government bonds have yielded a negative rate for most of the year, meaning investors pay the government for holding its debt. it also puts to the test an experimental new bank of japan policy that effectively keeps yields where it wants them by setting a target for 10-year government-bond yields at around zero, while keeping short-term rates negative. that means the central bank is likely to step in and buy bonds to push longer-term yields back down if they get too high, analysts and investors say. <u+201c>it<u+2019>s easy [for benchmark yields] to get to zero, but i believe the hurdle is fairly high for the yields to keep rising,<u+201d> said yuichi kodama, chief economist at meiji yasuda life insurance co. in tokyo. bond prices and yields move in opposite directions. investors around the world are processing the possibility that mr. trump<u+2019>s election victory could usher in a period of higher economic growth and inflation, ending an era of low and negative interest rates that fueled a yearslong rally in government bonds. inflation chips away at the value of fixed payments in the future, making bonds less attractive to hold. the yield on 10-year u.s. treasurys shot up to as high as 2.30% on monday, versus 1.867% on nov. 8, when the u.s. presidential election was held, marking one of its sharpest jumps over a similar period since 2008. the yield was at 2.29% on tuesday morning in new york, near its highest level since january. in germany, yields on 10-year bunds rose to their highest level since late january on monday, while the yield on the swiss 10-year government bond almost moved into positive territory from negative. yields on both bonds eventually settled lower on monday and continued to fall on tuesday. many emerging markets have seen even bigger bond selloffs as rising yields in the developed world make the debt of riskier countries less attractive. in malaysia, where foreigners own roughly half of government bonds, yields were at 4.198% late tuesday versus 3.662% on nov. 8. in indonesia, which pulled in some of the biggest inflows of cash in this year<u+2019>s rush to emerging markets, yields rose to 7.922% late tuesday, compared with 7.372% on election day. in japan, which has been experimenting with zero rates and aggressive easing since 1999 in an attempt to get its stagnant economy growing strongly again, yields in the $10 trillion government-bond market have been moving much more slowly. the 10-year government-bond yield has crept from minus-0.07% just before mr. trump<u+2019>s win, and rose above zero to 0.005% during tuesday trading in tokyo, before falling to around zero. the last time the benchmark had traded briefly above zero was sept. 21, just after the boj announced its plan to keep those yields around 0%. the boj implemented the plan to try to increase the effectiveness of its monetary policy and lessen its impact on banks by keeping a sizable gap between short- and long-term rates<u+2014>the spread on which most lenders earn their profits. but the policy also works to shield japanese yields from external pushes and pulls, and may be one reason japanese government bonds have been slow to join the global move. now investors are wondering how high the boj might let longer-term yields rise, and whether it can really exert the control on the massive market that it wants. <u+201c>the test will be whether the boj increases purchases to maintain its line in the sand,<u+201d> said charlie diebel, head of rates at aviva investors in london, which managed assets worth more than <u+00a3>318 billion ($397 billion) as of june 30. many investors are betting that, for now, the boj will let benchmark yields rise<u+2014>potentially to as high as 0.1%. some say the boj<u+2019>s task won<u+2019>t be too difficult, because there are plenty of japanese investors waiting to snap up government bonds once returns go up. <u+201c>the boj is letting go,<u+201d> said naka matsuzawa, japan rates strategist at nomura securities in tokyo. <u+201c>they are simply going to let the market do what they need to do.<u+201d> still, investors globally are watching whether the boj will buy bonds aggressively to tame rates<u+2014>especially at a time when other central banks could tighten policy. most investors expect the u.s. federal reserve to raise interest rates in december, while speculation has mounted that the european central bank could soon scale back its asset purchases. <u+201c>at some point buying will likely kick in, and investors will watch closely at what level the boj carries out [fixed-rate jgb purchase] operations,<u+201d> said takahiro iizuka, vice president of the treasury department at mizuho trust & banking. <u+2014>kosaku narioka and christopher whittall contributed to this article. write to hiroyuki kachi at hiroyuki.kachi@wsj.com and rachel rosenthal at rachel.rosenthal@wsj.com
as japan<u+2019>s 10-year bond yield turns positive, boj<u+2019>s experiment is tested  - wsj
hiroyuki kachi rachel rosenthal