TOKYO: Japanese government bond yields edged higher on Tuesday and an auction of two-year notes met tepid demand amid expectations for the Bank of Japan to exit negative short-term interest rate policy in the new year.
The 10-year JGB yield was 1.5 basis points (bps) higher at 0.625% as of 0430 GMT, while benchmark 10-year JGB futures fell 0.15 yen to 146.46.
The two-year JGB yield was flat at 0.035%, but hadn’t traded since the finance ministry announced the auction results, which saw the tail - a measure of demand that subtracts the lowest price at the sale from the average price - widen to 0.021 yen from 0.012 yen last month.
BOJ Governor Kazuo Ueda said on Monday the likelihood of achieving the central bank’s inflation target was “gradually rising” and it would consider changing policy if prospects of sustainably achieving the 2% target increase “sufficiently”.
The language differed slightly from Ueda’s usual phrase calling for the need to “patiently” maintain ultra-loose policy for the time being. “The BOJ looks set to end its negative rate policy by April at the latest,” Mizuho Securities economists Yasunari Ueno and Shintaro Inagaki said in a research note.
Japan’s longer-end bond yields jump as weak auction triggers selling
“Rather than do nothing, it may need to make a leap of faith, changing policy even while some (economic) signals are still amber or red,” rather than waiting for perfect conditions, “because the economic data in the real world are always going to be mixed,” they said.
The BOJ’s next policy meeting runs Jan. 22-23.
The five-year JGB yield rose 1 bp to 0.240%.
In the superlong sector, the 20-year yield added 2 bps to 1.370% and the 30-year yield gained 1.5 bps to 1.595%.
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