TOKYO: Japanese government bonds handed back recent gains in thin trade on Wednesday, as investors awaited US inflation data and positioned for possible policy changes under the Bank of Japan’s new governor.

Ten-year Japanese government bond yields, which are the target of the BOJ’s yield curve control policy, rose one basis point to 0.46% - not far from the 0.5% cap the central bank keeps to try and spur inflation and growth.

Ten-year futures slipped in light trade. Five-year yields rose about 2.5 bps to 0.155%, reversing a drop made in the wake of BOJ Governor Kazuo Ueda’s debut press conference, where he said he will stick with ultra-easy policy for now.

Yields rise when prices fall. In spite of Ueda’s remarks, which sent the yen lower, price action and chatter in the bond market points to a substantial chunk of investors who are convinced he will eventually start tightening things up.

“I think about 40% of the participants still expect there will be a tweak in the BOJ’s yield curve control policy,” said Kazuhiko Sano, chief fixed income strategist at Tokai Tokyo Securities.

Japanese government bonds squeezed as market waits on Ueda

The policy pens the 10-year yield to within 50 basis points either side of zero, and foreign short sellers have targeted the 10-year in bets the policy is changed or abandoned.

The next BOJ policy meeting runs April 27-28. US inflation data is due Wednesday. At the long end 20-year yields rose 1.4 bps to 1.076% and 30-year yields were steady at 1.322%.