Japanese government bond prices rose on Friday for a second day after a four-session plunge, bolstered by the Bank of Japan's asset-buying operations and reassured by the previous session's solid five-year sale The BoJ offered to buy outright 600 billion yen ($5.88 billion) in JGBs with residual maturities of more than 5 years and up to 10 years, and another 700 billion yen with residual maturities of more than 1 year and up to 5 years.
Still, many strategists believe that with the central bank buying an amount equivalent to 70 percent of new issuance, the market will be chronically choppy and yields will face upward pressure. "A degree of stability has returned to the JGB market since yesterday, as prices found support, and the 5-year auction proceeded smoothly," said Tomohisa Fujiki, interest rate strategist at BNP Paribas in Tokyo.
Japanese Finance Minister Taro Aso told parliament on Friday that it is desirable for currency markets to be stable, and that the Bank of Japan was taking various steps in response to the rise in long-term rates. The yield on the 10-year cash bonds fell 4.5 basis points to 0.795 percent. On Wednesday, it rose as high as 0.920 percent, its highest level in over a year.
The 10-year JGB futures contract ended up 0.42 point at 142.69 after rising as high as 142.85 in the morning session. The five-year bond was higher after solid demand at a sale of that maturity on Thursday, its yield falling 2 basis points to at 0.370 percent after it fell as low as 0.355 percent early in the session. Five-year yields hit a two-year high of 0.455 percent on Wednesday.