Japan’s 10-year bond yields fall to 3-week low as BOJ stands pat

TOKYO: Japan’s 10-year government bond yields fell to a three-week low on Friday after the Bank of Japan maintained massive stimulus, retreating from a six-year high scaled earlier in the session.

The BOJ maintained ultra-low interest rates on Friday and its guidance to keep borrowing costs at “present or lower” levels, signalling its resolve to focus on supporting the economy’s tepid recovery from the COVID-19 pandemic.

The decision was widely expected but a surprise move by the previously dovish Swiss National Bank on Thursday had spurred some speculation the BOJ could tweak its stance.

The 10-year JGB yield fell to 0.220% after the policy announcement, a level not seen since May 26.

The yield rose to as high as 0.265% in early trade, above the BOJ’s implicit cap and its highest since Jan. 4, 2016. “Investors got relief for now from the BOJ’s decision to keep its policy (unchanged),” said Takayuki Miyajima, senior economist at Sony Financial Group.

“The central bank was not as aggressive as the investors had expected in changing the policy.”

The benchmark yield rose earlier in the day after central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, in the wake of the US Federal Reserve’s 75-basis-point hike.

Japan 10-year JGB yields breach BOJ’s upper limit

Under yield curve control, the BOJ guides short-term rates at -0.1% and the 10-year JGB yield around 0%. The bank has offered to buy unlimited amounts of 10-year government every day since April.

To maintain the cap, the bank said on Friday it would conduct an additional offer to buy unlimited amounts of the 10-year bonds.

That came after the BOJ this week conducted waves of additional bond purchases, on top of its usual daily offers. The two-year JGB yield and the five-year yield were both flat at -0.090%, and 0.030%, respectively.

Longer-term yields inched up, with the 20-year JGB yield climbing 1 basis point to 0.880%.

The 30-year JGB yield rose 1 basis point to 1.175%, while the 40-year JGB yield was flat at 1.255%.

Benchmark 10-year JGB futures rose 0.2 point to 147.41, with a trading volume of 15,271 lots.