TOKYO: Benchmark Japanese government bond yields rose to a six-week high on Thursday as investors continued to position for a near-term end to Bank of Japan stimulus, while a weak bond auction also weighed on sentiment.

The 10-year JGB yield rose 2.5 basis points (bps) to 0.740% as of 0426 GMT, after earlier reaching 0.745% for the first time since Dec. 12.

The yield was as low as 0.63% on Tuesday after the BOJ decided to keep stimulus settings unchanged, but jumped on Wednesday as the market digested central bank chief Kazuo Ueda’s comments from the post-meeting news conference that the prospects of seeing the inflation trend sustainably reach the BOJ’s target were gradually heightening.

JGB yields edge lower as investors await BOJ decision

“Ueda hinted that they’re going to remove NIRP (negative interest-rate policy), but that’s just saying the policy rate is going to be zero and we don’t really know if hikes are going to continue after that,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

“He wanted to keep optionality,” Omori added.

“That’s making the market adjustment hard.”

Omori said investors are likely targeting an eventual rise in 10-year yields to 1%, but they are “still struggling to find the right level” for 2- and 5-year yields.

The five-year yield rose 0.5 bps to 0.315%, also the highest level since Dec. 12.

The two-year yield fell 0.5 bps to 0.060%, easing back from Wednesday’s nearly one-month peak of 0.065%.

Japanese yields also had pressure to rise on Thursday from a climb in US Treasury yields overnight.

Meanwhile, a weak run of JGB auctions continued with the finance ministry’s 40-year bond sale drawing the lowest demand since August of 2011, based on a gauge called the bid-to-cover ratio.

The 40-year JGB yield rose 2.5 bps to 2.095%, and earlier reached 2.1%, the highest since Nov. 2.

The 20-year yield jumped 4 bps to 1.550%, while the 30-year yield added 2 bps to 1.825%.

Benchmark 10-year JGB futures fell 0.17 yen to 145.99.