TOKYO: Benchmark Japanese government bond yields rose on Friday, headed for their biggest monthly rise since last July, as investors positioned for further policy tightening by the Bank of Japan.
The 10-year JGB yield ticked 1 basis point (bp) higher to 1.065% as of 0423 GMT, set for a 19.5 bps advance for May.
The yield soared briefly to 1.10% on Thursday, the highest since July 2011.
BOJ policymakers suddenly pivoted to a more hawkish tone near the start of this month as the yen’s slump to 34-year lows to the dollar threatened the central bank’s outlook for a positive cycle of wage increases driven by mild inflation.
That has put investors on guard for not just higher interest rates, following the first hike since 2007 in March, but for a start to quantitative tightening, particularly after the BOJ blind-sided traders with a surprise cut in the amount of bonds it offered to buy at a regular purchase operation on May 13.
The central bank releases its bond purchase plan for June at 0800 GMT, although the consensus view is for no change, said Naomi Muguruma, s
enior market economist at Mitsubishi UFJ Morgan Stanley Securities. “There’s no reason to reduce purchases since yields have been rising already,” she said.
And given that investors are reluctant to buy JGBs amid speculation that more purchase cuts could be imminent, “I don’t think the BOJ’s operations desk would dare to make further changes” following the May 13 cut, considering it made “market participants concerned that the BOJ could change the bond purchase amounts on a whim,” Muguruma added.
Japan’s 2 year bond yield hits 13-year high as BOJ chief hints chance of another rate hike
The BOJ will decide to start tapering the size of its bond-buying by end-July, according to nearly two-thirds of economists polled by Reuters earlier this month.
Benchmark 10-year JGB futures fell 0.18 yen to 143.02 on Friday, languishing near the previous session’s low of 142.85, a level not seen since July 2013.
The 20-year JGB yield rose 1.5 bps to 1.880%, and the 30-year yield gained 2.5 bps to 2.225%.
The five-year yield added 0.5 bp to 0.635%.
The two-year yield advanced 0.5 bp to reach 0.405% for the first time since April 2009.