JGBs steady after BOJ policy decision

Thu Dec 20, 2012 12:15am EST

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TOKYO Dec 20 (Reuters) - Japanese government bonds pared gains on Thursday after the Bank of Japan took further easing steps as expected, although benchmark yields stayed well off a nearly 7-week high hit in the previous session.

The BOJ expanded its asset-buying and lending programme (APP) by 10 trillion yen ($119 billion) to 101 trillion yen, a widely expected move to ease monetary policy in response to intense political pressure.

"Expectations for the BOJ's expansion of the APP were divided, with some expecting it to happen either this month or next, and many were more inclined to believe it would happen in January, so it's not a surprise, but they did it this time, not next time," said Maki Shimizu, senior strategist at Citigroup Global Markets Japan.

"At least it gives a message to the market that the BOJ is willing to do something more," she said.

The central bank faces intensifying pressure from Shinzo Abe, the country's next leader, to boost efforts to beat deflation.

Yields on cash 10-year JGBs fell 1.5 basis points to 0.765 percent, above the session low of 0.760 percent after the BOJ's announcement but still well below Wednesday's high of 0.780 percent, which was their highest level since Nov. 2.

The 10-year JGB futures contract was on track to snap a five-session losing streak, up 0.11 point at 143.89 although below its morning close of 144.08. On Wednesday, futures hit an intraday low of 143.70, their lowest since Sept. 20.

The recently battered superlong sector outperformed on Thursday, with life insurers said to be buying, though flows were said to be light. Long maturities suffered in recent weeks amid concern that Abe's reflationary policies could lead to inflation in the long term.

Yields on 20-year bonds fell 1 basis point to 1.735 percent, up from 1.720 earlier. On Wednesday, they rose as high as 1.750 percent in the previous session, their highest since early April.

Yields on 30-year bonds lost 2 basis points to 1.970 percent, up from a low of 1.955 percent before the BOJ's announcement.

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