Article Highlights

  • JGB yields rise as market expects BOJ to loosen its grip
  • BOJ conducts special bond buying operation at 0.10 pct
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Japanese government bond prices sagged on Monday, with the benchmark 10-year yield touching its highest level in almost a year and a half, as the market tries to test the Bank of Japan’s intention ahead of its policy decision the next day.

That forced the BOJ to conduct a special bond buying operation for two sessions in a row on Monday as many market players expect the BOJ could adjust its policy on Tuesday.

While there is no clear consensus, some market players think the BOJ could possibly announce it would allow larger moves in the JGB market by loosening its interpretation of its policy target of “around zero percent” in the 10-year yield.

Since the BOJ began the current policy in September 2016, the market has taken that to mean less than 0.100 percent as the BOJ has intervened to stem a rise in the yields, by conducting unlimited buying at 0.110 percent.

On Friday the BOJ lowered the yield to 0.100 percent.

Still the 10-year JGB yield rose to as high as 0.110 percent earlier on Monday, in defiance of the BOJ’s apparent defense line.

The BOJ offered to buy 10-year JGBs at the yield of 0.100 percent again on Monday.

We think the BOJ will allow wider trading band for the 10-year JGBs while sticking to its official policy guidance of zero percent in the 10-year yield,” said Naomi Muguruma, senior strategist at MUFG Securities.

The BOJ is expected to announce its policy some time around noon (0300 GMT) and 2 p.m. (0500 GMT) local time.

The price of 10-year JGB futures fell 0.12 point to 150.45

The 20-year JGB yield rose to 1.0 basis point to 0.595 percent, matching its near six-month high hit last week.

The 30-year yield rose 1.5 basis point to six-month high of 0.825 percent.

At the short end of the yield curve, the five-year yield rose 0.5 basis point to minus 0.090 percent and the two-year yield gained 0.5 basis point to minus 0.115 percent.