JGB yields mixed as market weighs monetary policy concerns

TOKYO: Japanese government bond (JGB) yields were mixed on Tuesday, as the market remained cautious that the Bank of Japan (BOJ) could raise interest rates in July at the same time it unveils bond purchase tapering plans.

Investors were also positioning carefully ahead of testimony from Federal Reserve Chair Jerome Powell on Tuesday and Wednesday.

Any hints Powell may drop on the direction of US interest rates could move domestic Treasury yields and, in turn, the JGB market, keeping the market on guard.

The 10-year JGB yield moved in a tight range, falling 0.5 basis point (bp) to 1.08%.

Meanwhile, markets were weighing the chance of another rate hike in Japan this month after the BOJ gave an optimistic assessment of wage growth on Monday, signalling confidence that Japan was making progress toward its 2% inflation goal.

But there’s uncertainty about whether the BOJ will hike at the same meeting it plans to announce specifics on reducing its JGB purchases.

Ryutaro Kimura, a fixed income strategist at AXA Investment Managers, believes it’s still unlikely, as the chance of achieving domestic demand-led economic growth remains fragile.

Japan’s 2 year bond yield hits 13-year high as BOJ chief hints chance of another rate hike

Such a move would also make it harder to discern the impact of each change on financial markets and the economy, he said.

“(Were) an unintended sharp rise in interest rates to occur as a result of multiple policy adjustments, it would be difficult for the BOJ to address the issue if it cannot accurately assess which policy is responsible for it.”

The BOJ will meet with bond market participants on Tuesday and Wednesday to collect their views before deciding on a tapering plan.

The five-year yield fell 1.5 bps to 0.575% after an auction for the bonds saw strong demand.

The bid-to-cover ratio, a measure of demand, was the largest since September 2023 at 4.26. The two-year JGB yield rose 0.5 bp to 0.36%.

The 20-year JGB yield was unchanged at 1.935%, while the 30-year JGB yield ticked up 1 bp to 2.21%.