TOKYO: Japanese government bonds ended almost flat on Wednesday, erasing early gains on disappointment the Bank of Japan did not act to calm jitters rooted in the bond's market rout over the past six weeks.
The 10-year yield stood near a one-year high hit a week ago and the market is seen as vulnerable as the BoJ's massive easing keeps pushing Japanese share prices higher and weakening the yen.
"Hardly any investors expected the yen's fall and a rally in shares of this magnitude. Everyone got it wrong so far. So some investors are starting to think that Japan's growth could be much higher than they had thought, if this continues," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
The yield on the 10-year cash bonds stood unchanged at 0.880 percent, not far from the one-year high of 0.920 percent last Wednesday.
Although JGBs had tracked gains in US bonds in early trade following dovish comments from Federal Reserve officials, those quickly evaporated after the BoJ's decision.
While few market players had expected new policy actions at the BoJ's two-day policy meeting ending on Wednesday, a small number of players had hoped the it could introduce a new funding programme, such as a two-year liquidity offer.
The 10-year JGB futures fell as low as 141.60 at one point but managed to end almost flat at 141.90.
"The market is so thin that it has become easier to make speculative selling," said Takafumi Yamawaki, chief rates strategist at JPMorgan Chase. "The BoJ doesn't seem to intend to forcefully rein in a rise in bond yields by any means."
Longer maturities fared worse, with the 30-year yield hitting a fresh three-month high of 1.885 percent , up 4.0 basis points on the day.
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