TOKYO: Japanese government bonds extended gains on Wednesday after the Bank of Japan held policy steady as expected and kept to its overall upbeat economic view - even with news this week that the economy had slipped into recession.
The BoJ said Japan's economy "continues to recover moderately as a trend" and voted to continue its purchases of government bonds and risky assets, maintaining its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen ($683 billion).
"At this point, the market feels like there is more downside risk in terms of the Japanese economy than upside risk, so that's why the JGB is basically strong," said Tadashi Matsukawa, head of fixed-income investments in PineBridge Investments in Tokyo.
On the supply side, the Ministry of Finance is considering increasing the issuance of 30- and 40-year Japanese government bonds by a total of 2 trillion yen in the new fiscal year starting in April, government officials with knowledge of the matter said on Wednesday.
The plan is aimed at taking advantage of current ultra-low yield levels to reduce the need for future debt rollovers as Japan's public debt continues to snowball.
The MOF's plan came as Prime Minister Shinzo Abe announced on Tuesday he would postpone a planned sales tax hike by 18 months to support the economy.
The 30-year JGB yield stood at 1.415 percent, down 5 basis points from the previous session, and from 1.445 percent earlier on Wednesday.
The 10-year yield shed 3 basis points to 0.470 percent , while the 20-year yield fell 5 basis points to 1.235 percent.
The yield on the two-year JGB fell one basis point to zero , meaning any further fall would put it in negative territory for the first time.
Japanese one-year government bills were sold for the first time at negative yields on Tuesday, underlining strong demand for the debt under the BoJ's qualitative and quantitative easing policy.
Lead 10-yr Dec JGB futures ended up 0.25 point at 146.30.
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