Japan’s five-year bond yield climbed to the highest since 2011 on growing speculation the nation’s central bank will raise interest rates to stem weakness in the yen.

The yield advanced one basis point to 0.49% near the close of the afternoon session on Friday, above a previous high of 0.485% set on Nov 1. Overnight-indexed swaps price in a rise in the Tokyo overnight average rate to 0.3% by the year-end from the Bank of Japan’s (BOJ) current target of zero to 0.1%.

The yen dropped to a three-decade low against the dollar this week on prospects that yield differentials will remain wide between Japan and the US. With stepped-up verbal warnings from government officials but no visible sign of an actual intervention, investors are betting that the BOJ will have to increase borrowing costs to slow a slide in the yen.

  - Bloomberg