Japanese annual inflation hit a decade-high of 1.2 per cent in March, helping trigger one of the biggest ever sell-offs in yen bonds as investors realised Japan has no immunity from price pressures facing the rest of the world, and that could eventually lead to a rate hike despite a weak economy.
Trading in bond futures on the Tokyo Stock Exchange was halted for a time to allow the market to settle, the first test of a circuit breaker mechanism introduced to the market this year.
Like other central banks, the Bank of Japan faces rising fuel, raw materials and food prices as it ponders what to do with rates, already at a very low 0.5 per cent in Japan.
But because the increases in consumer prices in major economies are largely due to climbing costs, rather than strengthening demand, investors have until recently been eyeing more rate cuts, rather than hikes.
Japan's core inflation rate of 1.2 per cent, issued on Friday, was just as economists had forecast but it reinforced the pressure on the BOJ to keep inflation under control, and shifted investors' focus towards an eventual rate hike.
"It is hard to think that the Bank of Japan's stance on monetary policy will change just because of a rise in cost-push inflation," said Mamoru Yamazaki, chief economist at RBS Securities.
"But it may stir talk among market players that it may become more difficult for the BOJ to lower interest rates."