Japan's five-year bond yield hits record high on bets of early rate hike

By Junko Fujita

TOKYO, Jan 16 (Reuters) - Japan's five-year government bond yield hit a record high on Friday, as a sharp drop in the yen raised ?expectation for an early interest rate hike from ?the Bank of Japan (BOJ).

The five-year yield rose 1.5 ?basis points (bps) to a record ?1.645%. The ?two-year bond yield rose 1.5 bps to 1.195%, matching ?the highest level since ?August 1996 set earlier this month. Bond yields move inversely to prices.

"The yen ?is struggling to ?rebound ?against the dollar and that has raised bets that the BOJ would speed up ?raising rates," said Yuki Kimura, a bond strategist at Okasan Securities.

A weaker yen tends to raise import costs, potentially accelerating inflation and weighing on consumption.

Some market players ?expect ?that the BOJ could raise rates again as early as April, but ?economists surveyed by Reuters see the central bank likely waiting until July before raising its key interest rate.

The benchmark 10-year JGB yield rose 1.5 bps to 2.175%.

U.S. Treasury yields were mostly higher ?overnight, after stronger-than-expected economic data slightly dented expectations that the Federal Reserve would cut rates in the near term. (Reporting ?by Junko Fujita; Editing by Subhranshu Sahu)