TOKYO: Japanese government bond yields ticked down on Tuesday, a day before crucial policy decisions by both the Bank of Japan and US Federal Reserve that will determine the near-term path for debt markets.
The 10-year JGB yield fell 2.5 basis points (bps) to 1% as of 0441 GMT, the lowest level since June 26, tracking an overnight decline in US Treasury yields.
Benchmark 10-year JGB futures rose 0.25 yen to 143.35 yen, set for the highest close in two weeks.
US 10-year Treasury yield stood at 4.18% by 0515 GMT, little changed from the New York close after dipping to as low as 4.151% on Monday. Investors expect the Fed to leave interest rates unchanged on Wednesday, but signal the start of its rate-cutting cycle in September.
Meanwhile, the BOJ has promised to detail plans to taper its huge bond buying on Wednesday, while also debating the timing of its next rate hike, following the first since 2007 in March.
The BOJ will decide on a quantitative tightening plan that will likely halve monthly bond buying in 1-1/2 to two years’ time, Reuters has reported - a pace roughly in line with market forecasts.
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More than three-quarters of economists polled by Reuters expect the BOJ to stand pat on interest rates, whereas money markets are pricing in a 64% chance of a 10 bps hike.
Mizuho Securities strategist Shoki Omori says market pricing is too aggressive, forecasting no rate hike on Wednesday and a terminal rate of 50 bps for Japan’s key rate in about two years from now.
“If the terminal rate is 50 bps, then the 10-year JGB yield is way too high currently,” Omori said.
“We’re going to see fluctuations over the next few days, but over the course of August, the 10-year yield is going to grind lower,” stabilizing at around 0.9%, he said.
On Tuesday, The two-year JGB yield and five-year yield each fell 1.5 bps, to 0.375% and 0.585% respectively.
The 20-year yield lost 1 bp to 1.785%.
The 30-year yield was flat at 2.115%.
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