TOKYO: Japan’s 10-year bond (JGB) yield sharply dropped and the 10-year JGB futures jumped on Friday after the Bank of Japan maintained the current pace of its bond-buying until at least next month.
The 10-year JGB yield extended declines after the BOJ decision, down 4.5 basis points (bps) to 0.92%.
Benchmark 10-year JGB futures jumped as much as 0.8 point to 144.26 and was last up 0.52 point.
At the end of its two-day policy meeting, the central bank said it would continue to buy government bonds at the current pace.
The bank decided to come up with a specific plan to trim purchases for the next one to two years, at a subsequent policy-setting meeting in July.
The market focus for Friday’s meeting was on how and when the central bank plans to reduce its huge balance sheet, which has ballooned as a result of its aggressive bond buying.
“Investors initially reacted to the decision by buying back the futures to cover their short positions,” said Miki Den, senior Japan rate strategist at SMBC Nikko Securities.
JGB yields rose sharply last month, with the 10-year bond yield hitting a near 13-year high of 1.1%, due to hawkish signals from the central bank, including an abrupt cut in its regular bond buying amount in mid-May.
“Pressure on the BOJ to trim the bond buying amounts will be bigger toward the next month’s policy meeting if the US Treasury yields are flat at the current level because JGB yields will track US peers’ trend,” Den said.
Yields on bonds with other maturities fell, with the five-year yield slipping 4.5 bps to 0.5%.
The two-year JGB yield fell 1 bp to 0.315%.
The 20-year JGB yield fell 2.5 bps to 1.745%, while the 30-year JGB yield was down 3.5 bps at 2.080%.
As widely expected, the BOJ maintained its short-term interest rate target in a range of 0-0.1% in a unanimous vote.
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