By Mark DeCambre, MarketWatch , Sunny Oh

U.S. government bonds rose early Monday, while Japanese government bonds sold off, marking their biggest one-day rate move for the 10-year in about two years, amid a report that the Bank of Japan was considering ways to make its stimulus program more sustainable.

What is the market doing?

The Japanese 10-year bond yield jumped to 0.83% from 0.32% on Monday. That marked its largest one-day yield move in about two years, according to WSJ Market Data Group.

Meanwhile, the 10-year Treasury note yield rose 4.1 basis points to 2.934%, after seeing its largest one-day yield rise since May 18 on Friday. That move helped the benchmark debt instrument register a weekly rise of 6.4 basis points, representing the steepest weekly climb also since May 18.

The 30-year bond yield jumped 4 basis points to 3.070%, after notching its largest one-day jump since May 15. The so-called long bond saw a weekly yield rise of 9.7 basis points, representing its largest weekly climb since the period ended May 18.

Meanwhile, the 2-year note yield rose 1.3 basis points to 2.612%.

Bond prices move in the opposite direction of yields.

What's driving Treasurys?

A surge in Japanese bond yields were the main story in early action Monday after Reuters reported (https://uk.reuters.com/article/us-japan-economy-boj-exclusive/exclusive-boj-to-debate-policy-change-in-july-to-make-its-stimulus-sustainable-sources-idUKKBN1KA1X3) that the BOJ would debate changes to its stimulus program to combat stubbornly low inflation in the region. The BOJ has been maintaining a "yield curve control" policy to hold its 10-year yield at around 0%.

Expectations for less accommodative monetary policy from the BOJ also helped to inspire selling in Treasurys. Analysts have pointed the finger at the likes of the European Central Bank and the Bank of Japan for keeping U.S. bond yields low, as low interest rates in major overseas economies have pushed investors out of their domestic bond markets into higher-yielding U.S. debt.

The Reuters report, citing people familiar with central bank's thinking, signaled that the Japanese central bank, led by Gov. Haruhiko Kuroda, might make its first tweaks to monetary policy since 2016. Those changes, which could come as soon as next week's policy meeting, may include shifts in its inflation target, which has been around 2%, and its stock-buying program. The BOJ next releases its policy update on July 31 (http://www.boj.or.jp/en/mopo/mpmsche_minu/index.htm/).

Yields on the 10-year Japanese bond jumped on the news, marking its steepest surge since around 2016. At the same time, the Nikkei 225 index tumbled 1.3%, with the Japanese yen yen strengthening against the dollar to Yen111.32, compared against Yen111.44 late Friday in New York.

What did market participant say?

"The recent news that the BOJ is mulling some changes to its aggressively accommodative monetary policy, including some moves recently to taper its buying activity at the longer end of the JGB curve, saw the 10-year yield there gap up nearly 5 basis points," wrote David Rosenberg, chief economist for Gluskin Sheff, in a Monday note, referring to the abbreviation widely used by bond traders referencing Japanese benchmark bonds.

"This is a really big move--biggest in two years--with some serious global implications if sustained, given what a huge exporter of capital Japan has been over the years due to its artificially suppressed government bond market," said Rosenberg.

What else is on investors' radar?

Meanwhile, Wall Street investors have been watching President Donald Trump's recent tweets with Iran, where the president warned Tehran not to threaten the U.S. Washington pulled out of an international nuclear pact forged in 2015 with the Middle Eastern oil exporter in recent weeks and sanctions against Iran are slated to be reimposed Aug. 6.

Trump's sternly word admonishment to Tehran leaders follow a series of potentially market-impacting statements from the president challenging monetary policy domestically and internationally as his administration remains locked in a testy dispute with trade partners in North America, China and Europe. On Friday, Trump again tweeted (https://twitter.com/realDonaldTrump/status/1020290163933630464) that unfair tariff arrangements deals have put the U.S. at a disadvantage with its allies.

On the data front, the Chicago Fed national activity index logged a positive reading of 0.43 in June (http://www.marketwatch.com/story/chicago-fed-national-economic-indicator-helped-by-factory-sector-snapback-2018-07-23), from a negative 0.45 the previous month. The National Association of Realtors said existing-home sales came in at a 5.38 million annual pace in June.

(END) Dow Jones Newswires

July 23, 2018 11:22 ET (15:22 GMT)