TOKYO: Japanese government bond prices rose on Friday, with the 10-year yield edging down to a fresh one-and-a-half-year low, as investors awaited the outcome of a Bank of Japan meeting at which it is widely expected to ease policy further.
The BOJ is likely to boost asset purchases by as much as up to 10 trillion yen ($123 billion) and might also extend the duration of government bonds it buys to about three years to show its resolve to achieve the 1 percent inflation target, sources have said.
The central bank surprised markets by setting the inflation target and taking more easing steps on Feb. 14. It said it would spend an extra 10 trillion yen on JGB purchases as part of its asset-buying programme in which it now buys bonds with up to two years left to maturity.
The latest price data released on Friday showed the central bank is a long way from attaining its inflation target. While core consumer prices rose 0.2 percent in March from the year-ago month, the so-called core-core inflation index, which excludes food and energy, fell 0.5 percent.
"The core CPI number shows that deflationary conditions are continuing, if one excludes energy and food prices, and it shows what a difficult task the Bank of Japan faces," said Ayako Sera, market economist at Sumitomo Trust and Banking.
"Perhaps market expectations of the BOJ are a bit too high," she added.
The 10-year JGB yield inched down 1 basis point to 0.900 percent, its lowest level since October 2010, while the 10-year JGB futures contract added 0.12 point to 142.98.
In other maturities, the five-year yield slipped 1 basis point to 0.265 percent, edging toward a 1-1/2-year low of 0.260 percent hit on Tuesday.
Japan's markets will be closed Monday, Thursday and Friday next week for the country's Golden Week holidays. Some market participants expect trading to be active after the BoJ's announcement, as investors adjust positions ahead of the holidays.
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