JGBs soar on expectation a Kuroda-led BoJ would ease aggressively

TOKYO: Japan government bonds rose on Monday, with the benchmark yield dropping to its lowest in nearly 11 weeks and the five-year yield plumbing a fresh record nadir after sources said monetary easing advocate Haruhiko Kuroda will be tapped as central bank chief.

Kuroda, president of the Asian Development Bank, has long criticised the Bank of Japan as too slow in expanding stimulus, so he would be expected to push more radical efforts to achieve its 2 percent inflation target set in January.

These measures could include increasing the central bank's bond-buying "rinban" operation, through which it buys 21.6 trillion yen ($231.7 billion) worth of JGBs per year. Rinban is separate from the BoJ's asset-purchase programme, under which it only buys bonds with up to three years left to maturity.

"The market reacted with a bull-flattening bias early in the morning session. It seems the market has started to price in more for an increase in the rinban operations," said Tomohisa Fujiki, interest rate strategist for BNP Paribas in Tokyo.

The prospect for more aggressive purchasing of longer-term bonds helps explains why gains were not confined to the short- and mid-term sectors of the yield curve, he said

In addition to the Kuroda developments, Japanese academic Kikuo Iwata, an advocate of unorthodox monetary easing steps to beat deflation, said he had been sounded out by Prime Minister Shinzo Abe for the post of deputy BOJ governor and would accept if nominated.

"Mr. Iwata is more for buying longer bonds, so let's see," Fujiki said.

The yield on 10-year bonds shed 2.5 basis points to 0.700 percent, its lowest since Dec. 12.

Ten-year JGB futures ended up 0.17 point at 144.67, after rising as high as 144.74, their highest since Dec. 11.