JGB yields subdued in calm after BOJ storm

TOKYO: Japanese 10-year government bond yields edged lower and futures rose yesterday in the aftermath of the Bank of Japan’s decision to stick with stimulatory yield curve controls (YCC).

A well-received auction of 20-year JGBs also supported the market.

The benchmark 10-year note yielded 0.41% as of 12:18 pm in Thailand, down half a basis point from the previous day, when it plunged as low as 0.36%. Ten-year JGB futures gained 0.3 points to 146.43, bringing them close to Wednesday’s onemonth high of 146.65.

Speculation had been building before the BOJ decision for another tweak to YCC after a surprise doubling of the 10-year yield’s allowable range to 50 basis points on either side of 0%.

The 10-year yield topped the 0.5% policy ceiling in each of the previous four sessions, including just ahead of the policy decision. Last Friday, it jumped as high as 0.545%, a level not seen since mid-2015.

“The outlook for Japanese inflation — and for a decisive change in the BOJ’s stance — hinges on wage growth,” BlackRock Investment Institute strategists Yuichi Chiguchi and Ben Powell wrote in a research note. “And that isn’t happening to the level the BOJ wants to see before getting comfortable in changing policy.”

However, with consumer prices rising at twice the central bank’s 2% target in the latest data for Tokyo, “markets will keep testing the BOJ’s resolve,” the analysts added.

The yield on 20-year JGBs sank 2 basis points to 1.325% after what one trader called “extremely strong” demand at an auction of the securities.

The five-year yield eased 1 basis point to 0.22%, while the 30-year yield inched 1 basis point higher to 1.53%.

Two-year JGBs had yet to trade, and last yielded 0.005%.