Japan government bonds still, waiting on BOJ

SINGAPORE: Longer term Japanese government bonds rose slightly on Tuesday, causing their yields to dip, as the Bank of Japan continued its bond purchases and traders waited for this week’s policy review.

JGBs have also been calmer this week because the yen has been stable and yields on US Treasuries dipped. Benchmark 10-year JGB futures rose 0.08 point to 149.35.

The 10-year JGB yield was flat at 0.245%. “While yen-denominated bonds have been bought back due to the decline in US interest rates, there isn’t any sense of direction in the market as investors are waiting for the Bank of Japan’s policy meeting on the 27th and 28th,” a domestic securities broker said.

The BOJ would also be loath to increase its bond buying operations so close to a policy review, the broker said.

Japan government bond yields rise on weak auction outcome

Speculation has been rife the BOJ could allow long-term rates to rise more or tweak its policy guidance to defend a falling yen, as some lawmakers fret further falls in the currency could do more harm than good to the economy by inflating import costs.

But with inflation modest compared with other nations and the economy still operating below pre-pandemic levels, the BOJ is in no rush to increase borrowing costs or modify a pledge to keep rates at current or lower levels, sources familiar with its thinking have said.

The 20-year JGB yield fell 2 basis points to 0.750%. The two-year JGB yield fell 0.5 basis point to minus 0.060%. Tuesday was also the final day of the four-day fixed-rate bond purchases the BOJ began last week, as part of efforts to defend its yield curve control policy.

That offer followed the yen’s decline to two-decade lows, which led to markets testing the BOJ’s policy band for 10-year JGBs at 0.25%. The dollar has gained 11% on the yen so far this year.

Last week’s 129.43 was the highest for dollar-yen in 20 years.

Japanese Finance Minister Shunichi Suzuki meanwhile dismissed media reports that he had discussed with US Treasury Secretary Janet Yellen a joint currency intervention to stem yen weakness during their meeting last week.