TOKYO: Japanese government bond yields jumped to multi-year highs on Monday after the Bank of Japan (BOJ) unexpectedly reduced the amount of bonds it offered to buy in a regular purchase operation, sending a hawkish signal to markets.
The two-year JGB yield, which tends to be more sensitive to the monetary policy outlook, rose 1 basis point (bp) to 0.325%, the highest since June 2013.
The five-year yield climbed 2.5 bps to 0.545%, a level not seen since April 2011.
The 10-year JGB yield leapt 3.5 bps to 0.940%, the highest since Nov. 1.
The central bank cut the offer amount for bonds with 5-10 years left to maturity to 425 billion yen ($2.73 billion) from 475 billion yen at the previous operation on April 24. It was the first reduction to its bond purchase offer since late December.
The announcement aligns with the BOJ’s decidedly hawkish tilt in recent days. On Thursday, minutes of the April policy meeting showed some board members saw the chance of interest rates rising faster than the market’s expectation. Later, BOJ Governor Kazuo Ueda signalled the potential for multiple rate hikes ahead.
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“The move was a surprise,” said Norihiro Yamaguchi, a senior economist at Oxford Economics in Tokyo.
“It seems that the BOJ is trying to signal to the market the potential that QT (quantitative tightening) is coming.”
However, Yamaguchi does not expect the BOJ to devise a roadmap for QT - a reduction of its bond holdings following years of massive purchases - until after it raises interest rates again, which he predicts will happen in September.
The BOJ raised rates in March for the first time since 2007.
The 30-year JGB yield rose 1.5 bps to 2.010%, a level last seen in February 2013. The 20-year JGB yield advanced 1.5 bps to 1.710%, the highest since Nov. 1.
Benchmark 10-year JGB futures fell 0.34 yen to 143.92.
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