TOKYO: Japanese government bond (JGB) yields rose on Tuesday to their highest in more than a decade, as bets grew that the Bank of Japan (BOJ) could raise interest rates in coming months.
In a hawkish signal on Monday, the Japanese central bank unexpectedly cut the amount of bonds it offered to buy in a regular purchase operation.
BOJ Governor Kazuo Ueda “has been very clear: he wants the market to find the right balance of long-term yields, instead of relying on the BOJ,” said Ales Koutny, head of international rates at Vanguard.
The reduction in JGB purchase amount has seen increased bets for another rate hike, pushing the 10-year JGB yield to a six-month high of 0.965%.
The two-year JGB yield, which corresponds closely to policy expectations, was up 1 basis point (bp) at 0.340%, after touching its highest since June 2009 at 0.345%.
Some market participants believe the yen’s excessive weakness may be forcing the BOJ’s hand, with many suspecting that to be the reason behind the cut to JGB offer amounts, said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.
JGB yields jump to multi-year highs as BOJ cuts bond purchases
“An increasing number of people in the market are thinking if the aim really is to stop the yen’s depreciation, then wouldn’t the BOJ raise rates as soon as July even?” he said, adding that the central bank was also expected to begin quantitative tightening at its June meeting.
Questions, however, remain about the state of the Japanese economy.
First-quarter gross domestic product numbers due on Thursday are expected to show a decline. Japanese Finance Minister Shunichi Suzuki said on Tuesday the government will work with the BOJ on currency market matters to ensure there is no friction between their mutual policy objectives.
An auction for the five-year bond saw decent demand despite concerns that higher expectations of an imminent rate hike would put off investors.
The five-year yield climbed to a 13-year peak of 0.565% before easing to 0.560%.
The 20-year JGB yield was up 3 bps at an 11-year peak of 1.770%.
The 30-year JGB yield rose 2.5 bps to 2.050%, its highest since July 2011.
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