JGBs slip ahead of BoJ verdict; downside likely limited

TOKYO: Yields on Japanese government bonds edged higher on Thursday, ahead of the outcome of the Bank of Japan's policy meeting and tracking higher US Treasury yields after a tepid debt sale in the United States.

The 10-year JGB yield rose 2.5 basis points to 0.760 percent, off a three-week low touched on Wednesday, while 10-year futures fell 26 ticks to 144.12 in brisk trading, breaking below their 14-day moving average of 144.15 and on track to snap their six-session winning run.

The US Treasury sold $24 billion in 10-year notes at a high yield of 2.046 percent, above what the market had expected and sending the benchmark yield in the secondary market higher.

Tomohisa Fujiki, interest rate strategist at BNP Paribas, said any downward pressure on JGB prices was likely to be limited in the near-term as the BOJ was still expected to keep buying the short-dated debt to support the economy.

"Pressure on prices for the JGB is relatively limited as most participants are convinced that further purchases by the BOJ should support the market," Fujiki said.

"But at the same time, there is a risk of downside because of further rise in risky assets."

Tokyo's Nikkei share average has rallied 30 percent since mid-November after Prime Minister Shinzo Abe called for aggressive policy measures from the central bank to revive the economy in his election campaign.

The Bank of Japan is expected to keep monetary policy steady at the end of its two-day policy meeting Thursday, but may revise up its assessment of the economy and rebuff growing global concern that Tokyo is trying to deliberately weaken the yen.

The 5-year yield added 1 basis point to 0.145 percent, retreating from its record low of 0.135 percent.

Yields on 30-year bonds inched down 0.5 basis point to 1.955 percent, hitting a three-week low and extending the previous session's 1 basis point fall after a reasonably well bid 40-year JGB auction. The 20-year yield added 0.5 basis point to 1.755 percent.

Japan's economy contracted for the third straight quarter in October-December, showing the country is struggling to escape from a mild recession and adding weight to the new government's push for further bolder policy steps.