Japan government bond yields fall after BOJ keeps policy unchanged
JAPAN government bond (JGB) yields fell on Dec 19 after the Bank of Japan (BOJ) said it is maintaining ultra-loose monetary settings after a two-day meeting, reversing their rise prior to the announcement.
The benchmark 10-year JGB yield was down at 0.65 per cent, a couple of points below Monday’s (Dec 18) close and off the day’s high of 0.685 per cent. JGB futures rose about 0.30 point as the markets resumed trade after a midday break, reversing an early loss of 0.09 point. They were last up 0.11 point.
The BOJ’s move was widely expected, underscoring policymakers’ preference to wait for more clues on whether wages will rise enough to keep inflation durably around its 2 per cent target.
“The rise in futures suggests yields on cash bonds could fall later in the day as some investors who shorted cash bonds want to buy them back,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. But the declines will be short-lived, and the market will remain volatile due to a lack of liquidity as the BOJ holds a significant portion of JGBs, said Inadome.
JGB yields have been volatile this month, with the 10-year yield swinging as much as 18 basis points, in part on speculation that the BOJ could end its negative rate policy soon.
The central bank also made no tweak in its forward guidance, where it currently pledges measures to defend its easy monetary policy without hesitation.
“The BOJ stance encouraged speculators to sell the yen, and there’s relief that yields in Japan aren’t likely to jump higher,” said Lee Hardman, a strategist at MUFG Bank. “That takes some of the downside risk away for other major global bond markets as well.”
The BOJ has conducted aggressive bond buying to contain rising yields as it defends its ultra-low rate policy, which has hurt market conditions and distorted the yield curve.
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