TOKYO/SINGAPORE: Japanese government bonds were listless on Thursday, with yields initially falling in line with US Treasury yields and then inching higher as investors deliberated the odds of the Bank of Japan tweaking policy this month.
Benchmark 10-year JGB futures fell as far as 147.55 yen from Wednesday’s high of 147.92, before settling at 147.67.
The 10-year JGB yield was flat at 0.460%. Ten-year interest rate swaps were at 0.67%, in the middle of a wide range between 0.3% and 1.1% traded this year.
Traders said new Bank of Japan Governor Kazuo Ueda’s comments this week have somewhat put paid to speculation around a tweak to the BOJ’s controversial yield curve control (YCC) policy when it meets late this month.
Ueda on Wednesday said the central bank must pay more attention to the risk of failing to meet its 2% inflation target with premature monetary tightening, rather than being behind the curve in combating too-high price growth.
Yet policy hawks also pointed to how companies have proposed wage rises at the annual “shunto” spring wage talks in March. “I think the BOJ should tweak the YCC at its April meeting, it is a good timing, especially Japanese companies are raising wages after their ‘shunto’ wage talks,” said Takayuki Miyajima, senior economist at Sony Financial Group. “But it is still uncertain if the inflation remains sustainably at 2% yet.
Japanese government bonds squeezed as market waits on Ueda
From what he said at the press conference, Ueda seems to want that the target to be achieved before tweaking the YCC.“
Traders also pointed to how the BOJ’s recent tweaks to open market operations, namely raising the cost for borrowing bonds and a lending program to encourage banks to buy more bonds, had repaired some distortions in the yield curve and bought it some time.
As investors sold all parts of the curve, barring the 10-year that the BOJ targets, betting on YCC being ended, had earlier caused a kink in the JGB curve.
In money markets, overnight uncollateralized call money was traded around -0.010% to -0.002%, higher than normal and reflective of larger funding needs.
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