TOKYO Jan 22 Japanese government bonds were
supported on Tuesday, with the 10-year yield hitting a six-week
low at one stage, on speculation the Bank of Japan will take
aggressive easing steps at its policy meeting ending later in
* The 10-year cash bond yield fell as low as 0.725 percent
, before stepping back to stand flat at 0.735
percent. The benchmark futures contract hit a six-week
intraday high of 144.57 before ending morning trade virtually
flat at 144.40.
* The BOJ is expected to sign a historic statement with the
government to target 2 percent inflation and to announce fresh
measures to help achieve that, including an increase in its
asset purchase programme.
* A main focus for the bond market is whether the central
bank cuts, or scraps, its 0.10 percent interest on excess
reserves, which has served as a floor for all money market
* Short- and medium-term note yields have slipped in recent
sessions on speculation of such a cut in that interest rate. The
five-year bond was at 0.15 percent, flat on the
day but just a hair above its record low of 0.145 percent marked
in June 2003.
* Medium-term notes would get a boost if the BOJ expanded
the target of bond buying in its asset purchase scheme from the
current target of bonds with up to three years to maturity,
though market players see limited chance of the BOJ doing so.
* On the other hand, longer maturities such as the 30-year
have been pressured by concerns that bold BOJ steps could one
day lead to inflation.
* The 30-year bond yield rose 1.0 basis point to 1.975
percent, while the 20-year yield rose 1.0 basis
point to 1.745 percent.
* The JGB yield curve has been steepening in recent months,
with the spread between 10- and 20-year yields hitting a record
high of 101.5 basis points last week, as investors expect
aggressive easing from the BOJ.
* The steepening also reflects mounting concerns about
Japan's snowballing public debt, which amounts to more than 200
percent of its economy.
* While a huge pool of Japanese private savings has helped
spare Japan from the type of turmoil that hit indebted countries
in Europe, many investors think Japan's funding capability could
become more vulnerable in the future unless it can boost growth.