Hawkish BOJ signals send short-term JGB yields to 30-year highs; yen spikes

(Updates with yen spike, BOJ governor's news conference)

By Kevin Buckland

TOKYO, Jan 23 (Reuters) - Hawkish signals from the Bank of Japan on Friday boosted short-term government bond yields to a three-decade high, while the yen abruptly spiked after sliding past 159 per dollar towards an 18-month low.

The yen had weakened even as two-year JGB yields climbed to 1.25% for the first time since August 1996, as BOJ Governor Kazuo ?Ueda's press conference unfolded without any surprises. However, shortly after, the yen suddenly vaulted from around 159.2 per dollar to as strong as 157.3 in a span ?of a few minutes.

Traders are on high alert for potential government intervention to support the yen, which has remained perpetually weak ?even as the central bank raised interest rates and bond yields rose as a ?result, perplexing many market watchers.

Japan's ?Ministry of Finance was not immediately available for comment when contacted by Reuters.

"It has been quite common recently for the yen to weaken after Governor Ueda's ?press conferences, and there is no doubt that the FX market ?has become nervous once USD/JPY moves above 159," said Hirofumi Suzuki, chief foreign-exchange strategist at SMBC.

"For a while, USD/JPY is likely to trade in a volatile manner amid lingering uncertainty and suspicion."

Earlier in ?the day, Japanese Finance Minister Satsuki Katayama repeated warnings that ?officials were monitoring financial ?markets with a high sense of urgency. Levels around 160 in the dollar-yen exchange rate provoked rounds of yen intervention in 2024.

Ueda reiterated at the news conference that the central bank will continue to raise ?rates if the economy and inflation develop in line with forecasts.

Earlier in the day, the BOJ raised its economic and inflation forecasts, but left policy settings unchanged. The decision had been widely expected considering officials had raised rates to a 30-year high of 0.75% at their last meeting only a month earlier.

"The focus on inflation looks a little bit hawkish - I think it shows that the BOJ intends to continue to hike the policy rate," said Tohru Sasaki, chief strategist at ?Fukuoka Financial Group.

"The ?question is: How fast, how far?"

Swaps markets currently anticipate two quarter-point hikes this year, with the first one fully priced in by July, according to LSEG calculations.

The two-year JGB yield, which is particularly sensitive to the ?monetary policy outlook, jumped 3.5 basis points (bps) to reach 1.25%.

Yields on five- and 10-year notes also ticked higher, while those on longest-dated bonds eased further from record peaks hit earlier this week following a flare-up in fiscal worries after Prime Minister Sanae Takaichi pledged to expand fiscal stimulus, including a suspension of the consumption tax on food.

Yields rise when bond prices fall.

Takaichi dissolved parliament on Friday, clearing the path for a snap election on February 8, in which she hopes her personal popularity among voters will help bolster her government's narrow ?majority.

"Long-term interest rates are rising at quite a fast pace," Ueda said at the news conference.

"We are ready to take nimble action to cope with exceptional moves that are different from usual."

Japanese stocks closed right before the news conference began, with the Nikkei gaining 0.3% to 53,846.87 and the broader ?Topix adding 0.4% to 3,629.70. (Reporting by Kevin Buckland; Additional reporting by Rocky Swift; Editing by Subhranshu Sahu and Jacqueline Wong)