Short-term Japanese government bonds dropped in price on Tuesday as investors prepared for an expected interest-rate increase by the Bank of Japan. Longer-term bonds moved the other way — they gained in price. The two-year bond yield rose 1.5 basis points to 0.155% WSJ.

Here is what that means in plain terms. A basis point is a tiny unit — one-hundredth of a percentage point. And a bond's yield is the interest return you get for holding it. Yields and prices move in opposite directions: when investors sell bonds, prices fall and yields go up. So the drop in short-term bond prices pushed their yields higher.

Short-term bonds are the most sensitive to what investors think the central bank will do with interest rates next. That is because their returns are tied closely to what borrowing costs are expected to be in the near future. So when investors think a rate hike is coming, they sell short-term bonds first.

A bigger shift sits underneath this day-to-day movement. The Bank of Japan changed its approach in September, focusing on interest rates rather than the amount of money in the economy Nikkei Asia. That made it less necessary for the central bank to buy short-term bonds to meet its targets. With the central bank stepping back as the main buyer in the three- to five-year range, private investors, including foreign ones, now make up a bigger share of the market. That leaves short-term bonds more exposed to real market forces.

The Bank of Japan did not actually cut its bond purchases in the three- to five-year range Reuters. So the sell-off is not about too many bonds flooding the market. It is about investors choosing to sell because they believe rates are going up. That difference matters. If the problem were too much supply, the pressure would likely fade once the market adjusted. But when the selling is driven by rate-hike expectations, it can continue as long as investors keep thinking a hike is coming.

The split between short and long bonds also tells you what the market expects over the longer haul. If investors thought Japan was starting a long series of rate hikes, long-term bonds would probably fall too. Instead, long-term bonds gained. That fits the idea that investors expect a small, possibly one-time rate increase — not a long campaign of hikes. The Bank of Japan's September shift toward focusing on yields created the conditions for this kind of divided move Nikkei Asia.

What this means for everyday borrowers and savers is that bond markets are telling a specific story: a rate hike soon, but not much more after that. The two-year yield at 0.155% already bakes in a hike the Bank of Japan has not actually announced. If the central bank's messaging in coming weeks strengthens that expectation, short-term yields could keep climbing. The rally in long-term bonds, meanwhile, suggests investors either want the safety of government bonds or believe growth will stay weak. Both views cannot be correct forever. Whether the market's forecast proves right depends on inflation data and central-bank guidance that we do not have yet.