TOKYO: Japanese government bonds edged down on Wednesday, taking their cue from a rebound in equities, but trade was overshadowed by news that a primary dealer is set to quit in the latest reaction to the central bank's negative interest rate policy.
Bank of Tokyo-Mitsubishi UFJ, the core banking unit of Mitsubishi UFJ Financial Group Inc, is expected to give up its role as one of the 22 primary dealers of Japanese government bonds as early as July, according to a source.
A MUFG spokesman confirmed that the banking unit was considering the move but declined to comment further.
Analysts said the move is not expected to have an immediate impact on the JGB market as the central bank is aggressively buying bonds as part of its monetary stimulus programme, but some market watchers said the long-term implications for demand were worrying.
"The MUFG news didn't have an real effect at all on today's trading, but of course it's a big topic of conversation," said a fixed income fund manager at a European asset management firm in Tokyo.
"It's a surprise, because it's one of the leading banks, and I'm wondering what other megabanks will do," he said.
The benchmark 10-year yield edged up 1 basis point to minus 0.115 percent.
June 10-year futures ended down 0.16 point at 152.00, well below their session high of 152.18 touched in morning trade.
The 20-year JGB yield added 1 basis point to 0.225 percent after earlier setting a record low of 0.205 percent.
The Bank of Japan's negative interest rate implemented in February has pushed yields on most JGBs below zero. Japanese banks have drastically reduced their JGB holdings since the BOJ began its aggressive stimulus programme in 2013.
Chief Cabinet Secretary Yoshihide Suga said on Wednesday the Japanese government would continue to conduct an appropriate government bond management policy through close dialogue with markets to secure stable absorption of government debt.
Japan's Nikkei stock index ended up 0.9 percent, turning positive as investors focused on the bright spots in China's trade figures. China's imports beat forecasts in May, adding to hopes that the economy may be stabilising even though exports fell more than expected.
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