February 2, 2018 / 6:28 AM / 10 months ago

JGBs rebound as BOJ draws line in sand to curb rising yields

(Adds detail, updates prices)

By Hideyuki Sano

TOKYO, Feb 2 (Reuters) - Japanese government bond prices recovered, pulling the 10-year yield off 6-1/2-month highs, after the Bank of Japan acted decisively on Friday to curb a rise in bond yields, by offering “unlimited” buying in long-term Japanese government bonds.

The measure was the most important weapon for the BOJ to achieve its ultra-loose policy mandate — the yield curve control (YCC) policy — in which it aims to keep the 10-year JGB yield “around zero percent”.

The BOJ offered to buy 10-year JGBs at the yield of 0.110 percent, the same level it had offered unlimited buying twice last year.

Such buying at a specific yield level is considered the most powerful show of force in directing the market, compared with its regular bond purchases through auctions.

On top of that, the BOJ increased the amount of its planned buying through auction in five- to 10-year JGBs to 450 billion yen ($4.10 billion) from the 410 billion amount it has favoured since late August.

“Today’s operations have clarified the BOJ’s stance (to keep the 10-year JGB yield from rising above 0.110 percent.) Concerns in markets should recede for now,” Noriko Tada, senior economist at Nomura Securities.

The price of the 10-year JGB futures rose to 150.28, from the day’s low of 150.09 and up 0.08 on the day.

The benchmark 10-year cash JGB yield edged down to 0.090 percent, the same level as its previous close, from 0.095 percent touched earlier.

JGB yields have risen in recent weeks, in line with global peers, on rising expectations that the world’s central banks are increasingly leaning towards winding back stimulus as the global economy gains momentum.

Investors have started to speculate that the BOJ could also be moving towards an exit from ultra-easy monetary policy, although BOJ Governor Haruhiko Kuroda has denied that he was considering such a major adjustment in the near future.

“I think the BOJ took pre-emptive steps to fend off further rises in JGB yields. JGB prices recovered so I think it was a success at least for now,” said Naoya Oshikubo, yen rates strategist at Barclays.

“But given that the main reason for higher yields comes from foreign bonds, the market will likely remain capped,” he added. ($1 = 109.6800 yen) (Editing by Eric Meijer and Jacqueline Wong)

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