Japan's 10-year government bond auction demand is strong, and market interest rate hike expectations rise to 80%.

Demand for Japan's 10-year government bond auction on Tuesday was stronger than the average over the past 12 months, and the higher yield level still attracted investors despite rising market expectations for the central bank's near-term interest rate hike. The bid multiple was 3.59, up from 2.97 at the last auction in November and the 12-month average of 3.20. The auction followed comments by Bank of Japan Governor Kazuo Ueda on Monday that were seen by the market as increasing the likelihood of a rate hike later this month. Ueda said the Bank of Japan will weigh the pros and cons of a rate hike and take appropriate action, adding that financial conditions will remain accommodative even after the rate hike. At present, the swap market is implying a probability of a rate hike at the December 19 policy meeting of about 80%, while the probability of a rate hike in January has risen to more than 90%. This compares to just a week ago, when the probability of a rate hike in December was only 36%. Meanwhile, Japan's Ministry of Finance plans to increase short-term debt issuance to help fund Prime Minister Takaichi Sanae's economic stimulus package, increasing the issuance of two- and five-year government bonds by 300 billion yen each, and increasing the supply of treasury securities by 6.30 trillion yen. (Jin Ten)