JGB yields climb to fresh decade highs in run-up to BOJ meeting

TOKYO: Japanese government bond (JGB) yields climbed to fresh decade highs on Thursday, following a rise in US Treasury yields overnight, as investors weighed the possibility of the Bank of Japan tweaking policy at next week’s monetary policy meeting.

The benchmark 10-year JGB yield rose as high as 0.885% before ticking down to 0.88%, hitting its highest since July 2013.

The yield has hit new peaks every day this week, following reports that the BOJ has discussed making further adjustments to its yield curve control (YCC) policy as it faces pressure from rising global yields.

US Treasury yields climbed overnight, with the 10-year US note last hovering around 4.97% in Asian hours. On the short end, the two-year JGB yield edged up to its highest since June 2014 at 0.085%, while the five-year yield was at a fresh multi-year peak of 0.38%.

The rise in yields comes despite the Bank of Japan (BOJ) conducting an unscheduled bond-buying operation for the sixth time this month on Tuesday to slow their climb.

Bank of Japan to conduct unscheduled bond-buying operation

If the BOJ were to tweak its YCC policy, it would come just three months after the central bank raised the de-facto cap on the 10-year JGB yield to 1.0% from 0.5%, allowing long-term rates to rise more to reflect increasing inflation.

There is some uncertainty in the market heading into the central bank’s meeting next week, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

Although his base case is for the BOJ to leave YCC untouched at its October meeting, Inadome said there’s a slight chance the bank could make a tweak.

“I think Governor (Kazuo) Ueda’s thought process is, if it seems like (the 10-year yield) will end up rising above 1%, he doesn’t want to stop it so forcibly,” he said.

A majority of economists polled between Oct. 17-25 by Reuters expects no change to policy at next week’s meeting, while those at Barclays, JP Morgan and UBS said the BOJ would begin unwinding its easy stance then.