Japan's 10-year bond yield slips after BOJ decision

JAPAN’S 10-year government bond yield fell on Friday (Jun 16) after the Bank of Japan (BOJ) kept its ultra-loose monetary policy unchanged, but declines were limited as investors braced for the BOJ’s tweak as early as next month.

The Bank of Japan maintained its ultra-easy monetary policy as it focused on supporting a fragile economic recovery amid a sharp slowdown in global growth.

But pressure on the BOJ to tweak its policy, which includes its yield curve control (YCC), under which it controls the 10-year bond yield, is mounting amid stronger-than-expected inflation.

Narrower moves of cash bond yields and futures price on Friday indicated that investors maintained their short positions as they braced for the policy shift as early as next month, fund managers and strategists said.

“The scale of short positions to hedge the BOJ’s policy tweak was much smaller this time,” said Ataru Okumura, strategist at SMBC Nikko Securities.

“Investors have caution for the policy tweak at the BOJ’s July meeting because the central bank releases its quarterly economic outlook report.”

The 10-year JGB yield fell 2 basis points (bps) to 0.405 per cent, after slipping to 0.400 per cent on the BOJ’s decision.

The 10-year JGB futures reversed course to rise and last traded up 0.21 yen at 148.29.

That compares with the decline of 7.5 bps in the 10-year bond yield after the policy meeting on April 28, when the BOJ made a similar decision. The 10-year futures rose 0.85 yen on that day.

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Yields fell across the curve, with the 20-year JGB yield falling 1 bp to 0.995 per cent and the 30-year JGB yield slipping 0.5 bp to 1.230 per cent.

The 40-year JGB yield fell 0.5 bp to 1.380 per cent.

The five-year yield fell 0.5 bp to 0.080 per cent, and the two-year JGB yield was flat at -0.070 per cent. REUTERS