Japanese government bonds rally as bets for BOJ rate hike fade
Imported energy costs from the Middle East crisis cloud the inflation picture and risk a slowdown in the economy
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[TOKYO] Japanese government bonds (JGB) rallied on Monday (Apr 20), as investors gauged how inflationary pressures will affect the timing of the rate increases by the central bank.
The benchmark 10-year JGB yield, which last week touched a 29-year high of 2.49 per cent, fell 2.5 basis points (bps) to 2.395 per cent. The five-year yield, which jumped to a record 1.9 per cent on Apr 13, slid two bps to 1.815 per cent. Yields move inversely to bond prices.
Bank of Japan (BOJ) governor Kazuo Ueda said last week that Japan is facing rising inflation from a “negative supply shock”, which is more difficult to rein in with monetary policy than inflation driven by strong demand.
A quarterly BOJ survey on Monday showed that inflation expectations among households held steady, with 83.7 per cent of respondents saying that they believed prices will be higher a year from now.
“The market’s main scenario appears to be that a rate hike will be put off next week,” said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.
“However, even if an April rate hike is indeed postponed, governor Ueda’s stance at the press conference could change depending on the data available leading up to the monetary policy meeting.”
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The BOJ last raised its key rate in December, lifting it to 0.75 per cent, as it seeks to normalise its monetary policy after more than a decade of massive stimulus. Bets for another hike at the BOJ’s Apr 28 to 29 meeting stood at about 60 per cent in early April.
But recent signals from central bank officials have reduced those expectations, as imported energy costs from the Middle East crisis cloud the inflation picture and risk a slowdown in the economy.
Japanese inter-dealer broker Tokyo Tanshi’s interest-rate swaps data on Friday indicated just an 18 per cent chance of a hike next week.
The two-year JGB yield, the one most sensitive to BOJ policy rates, edged half a basis point lower to 1.355 per cent. REUTERS
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