TOKYO: Japanese government bond prices were nearly unchanged on Friday, with the benchmark 10-year bond hovering just above a 17-month low as political pressure intensified for the Bank of Japan to take fresh easing steps.
The market consensus is that the BOJ will ease further at its meeting on April 27. Sources have said the central bank could expand its 65 trillion yen asset-buying and loan programme by 5 trillion or 10 trillion yen, with the increase to be used to buy government bonds.
The BOJ might also extend the buying operation deadline to June 2013, from the end of 2012.
The yield curve steepened slightly on expectations that the central bank will extend the maturities it purchases through its asset-buying programme, under which it now buys bonds with up to two years left to maturity.
"Our view is that they will extend that to four years," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
"We are pretty aggressive on the BOJ next week. Even without the Fed moving, we think they will be forced to move by a tremendous amount of political pressure which is building right now," Fujita said.
The US Federal Reserve will meet on April 24-25, but is not expected to take any new policy steps.
CALLS FOR BOJ TO DO MORE
International Monetary Fund Deputy Managing Director Naoyuki Shinohara added his voice to the chorus calling for the BOJ to do more, telling Reuters in an interview that with little room for additional fiscal stimulus, Japan needs to rely more on monetary policy.
"Looking at Japan's economy, I don't see any fears of inflation. Rather, there's a risk deflation may worsen given its demographics and weak economic growth," Shinohara said.
Japanese Economics Minister Motohisa Furukawa said at a news conference on Friday that extending the maturities of the bonds it purchases is one option for the central bank.
The Democratic Party of Japan will discuss proposed revisions to the law governing the BOJ, policy chief Seiji Maehara said on Thursday, according to Japanese business daily Nikkei. Furukawa denied that the government was considering such a proposal.
The yield on the latest 10-year JGBs was flat at 0.935 percent, not far from Monday's 17-month low of 0.930 percent.
The 1 percent mark is viewed as key support, with the benchmark yield trading under this level for the past two weeks.
June 10-year JGB futures ended up 0.06 point at 142.73.
The curve steepened as BOJ expectations lifted the shorter tenors, with the 5-year yield creeping down half a basis point to 0.280 percent, while the 30-year JGB yield added one basis point to 1.905 percent.
The 20-year JGB slipped slightly, with its yield inching up half a basis point to 1.720 percent.
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