TOKYO: Japanese government bond (JGB) yields rose on Tuesday amid caution over the Bank of Japan’s (BOJ) possible policy shift, while sentiment was hurt by the weak outcome of the 40-year note auction.

The benchmark 10-year JGB yield rose 0.5 basis point (bp) to 0.460%.

The 40-year JGB yield rose 2.5 bps to 1.495%.

“Market participants are not fully confident that the BOJ will keep its policy unchanged at its policy meeting,” said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.

“And it seemed life insurers did not actively bet on the 40-year bonds at the auction today. It is natural that investors turned cautious.”

The market found the outcome of the auction weak even as it received bids worth 2.54 times the amount sold, higher than a ratio of 2.38 times at the previous auction.

The 40-year bond yield retreated ahead of the auction from a four-month high of 1.58% scaled last week.

Japan’s 10-year bond yield falls to near 1-month low on BOJ relief

The BOJ is leaning towards keeping its yield control policy unchanged at this week’s meeting as policymakers prefer to scrutinise more data to ensure wages and inflation keep rising.

But investors remember a surprise tweak in the yield curve control policy in December when the BOJ widened the trading band of the benchmark 10-year bond yield.

Strategists say the rise in yield would be limited even if the BOJ tweaks its policy as investors are holding off their bets ahead of the meeting and would scoop up the bonds after the decision.

The 20-year JGB yield rose 1 bp to 1.065% and the 30-year JGB yield rose 2 bps to 1.340%.

The five-year yield rose 1 bp to 0.110%.

The two-year JGB yield was flat at -0.045%.

Benchmark 10-year JGB futures fell 0.01 yen to 148.21, with a trading volume of 11,116 lots.