Japanese government bond prices were mixed on Friday, with the curve flattening as superlong tenors caught up to the shorter end's gains in the wake of this week's unexpected easing by the Bank of Japan. For most of this week, the yield curve steepened as the shorter end benefited the most from the BoJ's move to spend an extra 10 trillion yen on JGBs as part of its asset-buying programme. The central bank buys bonds with up to two years left to maturity.
"The BoJ's commitment to easy policy, as well as more possible easing by the US Federal Reserve, makes it difficult to sell bonds," said Ayako Sera, market economist at Sumitomo Trust and Banking. The 30-year yield lost a basis point to 1.905 percent and the 20-year yield also dropped a point to 1.720 percent. Ten-year JGB futures ended down 0.13 point at 142.75, in a week in which they spiked as high as 143.37 shortly after the BoJ's announcement on Tuesday, their highest level since November 2010.
Chartists say that if futures hold above 142.37-142.43, a ranged marked by the February 14 low and the 76.4 percent retracement of the February 9 - February 14 rise, they could retest the post-BoJ high. The yield on 10-year cash JGBs gained half a basis point to 0.945 percent, while the five-year yield added half a basis point to recover to 0.300 percent, a level it had broken in the previous session following a strong auction of the maturity.
Naka Matsuzawa, chief investment strategist at Nomura Securities, wrote in a research note that the five-year yield is unlikely to fall significantly before April or until the Fed implements additional quantitative easing. But he also said: "During this period, the market should be supported by tighter supply/demand from the BoJ's increased JGB purchases, as well as by additional easing expectations."
The market had a muted reaction to remarks from BoJ Governor Masaaki Shirakawa, who said on Friday that Japan still has a long way to go before achieving consumer inflation of 1 percent and reiterated the bank's commitment to easy monetary policy. "The BoJ will continue with powerful monetary easing with an eye on its medium- to long-term price goal," Shirakawa said at a news conference in Tokyo. The market also showed no reaction to a warning from the head of Japan's banking lobby late on Thursday, who said the country could face its own sovereign debt problems within a decade unless it speeds up efforts to improve its fiscal health.