TOKYO: Japanese government bond yields were slightly lower on Friday ahead of the Bank of Japan (BOJ) policy decision, while elevated US Treasury yields also weighed on sentiment.
The 10-year JGB yield fell 1 basis points to 0.735%, after trading flat at 0.745%, its highest since September 2013 scaled in the previous session.
“Investors were making short positions until yesterday as they had anticipated some changes in the BOJ’s policy, such as a tweak in its forward guidance,” said Ataru Okumura, senior strategist at SMBC Nikko Securities.
“But they bought back some JGBs as there have been no media reports about the policy meeting. Market players see media reports ahead of the end of the policy meeting as a key clue for yield movements.”
After the two-day policy meeting, the BOJ is widely expected to maintain its short-term interest rate target of -0.1% and that for the 10-year bond yield around 0%.
But with inflation exceeding the BOJ’s target and the yen renewing its slide, markets are focusing on any signals Governor Kazuo Ueda could drop on the timing of a policy shift.
The BOJ is a laggard in a global monetary cycle that has seen the US and European central banks tighten policy aggressively during the past year, and in recent meetings, signal their resolve to keep borrowing costs high to rein in inflation.
Hiroshi Namioka, chief strategist and fund manager, T&D Asset Management, said the dovish outcome of the BOJ policy meeting could ease investor sentiment, but the rising US yields will remain a huge upward pressure on Japanese bond yields.
Benchmark 10-year US Treasury yields rose to 16-year highs on Thursday, a day after the Federal Reserve surprised investors by flagging the potential for an additional rate hike and an expectation for fewer cuts next year.
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