JGB yields rise as BOJ considers exit from negative rates in March

TOKYO: Japanese government bond yields rose on Monday, as traders maintained a cautious stance following reports that the Bank of Japan is leaning toward exiting negative interest rates next week.

The benchmark 10-year JGB yield was 3 basis points (bps) higher at a one-month high of 0.760% in early trade, while 10-year JGB futures fell 0.14 yen to 146.11 yen.

Although it looks to be a close call, BOJ policymakers are warming up to the idea of ending negative interest rates this month, according to four sources familiar with its thinking said.

Upon ending negative rates, the central bank is also likely to overhaul its massive stimulus programme that consists of a bond yield control (YCC) and purchases of riskier assets, the sources said.

Japan’s Jiji news agency reported on Friday that the central bank is considering replacing YCC with a new quantitative framework.

Under its stimulus programme, the BOJ guides short-term interest rates at -0.1% and the 10-year government bond yield around 0%.

JGB yields track US peers higher, BOJ policy shift speculation weighs

The reports have given investors “additional evidence that supports an earlier hike rather than later in April”, said Shinichiro Kadota, chief currency strategist at Barclays. The five-year yield edged up to its highest level in four months at 0.40% before slipping to 0.385%.

The news comes as big Japanese companies appear set to offer hefty pay hikes at annual wage talks with unions, which Japan’s central bank has marked as a key factor in determining the timing of its exit.

Negotiations will wrap up on March 13, ahead of the BOJ’s meeting on March 18-19.

Japan’s economy avoided a technical recession, revised government GDP data showed on Monday, a “positive sign” that further supports an earlier exit, added Kadota.

Market expectations for an end to negative rates as soon as March grew after BOJ chief Kazuo Ueda and one of its board members said on Thursday the economy was moving towards its 2% inflation target.

The two-year JGB yield was flat at 0.195%.

The 20-year JGB yield was last 1.530% after climbing to around a one-month high of 1.535%. The 30-year JGB yield rose to 1.825%, its highest since Feb. 1, before easing to 1.815%.