September 25, 2017 / 6:25 AM / a year ago

Benchmark JGBs steady; muted reaction to snap election hopes

TOKYO, Sept 25 (Reuters) - Benchmark Japanese government bonds were steady on Monday, with the market having a muted reaction to the possibility of additional stimulus steps after Prime Minister Shinzo Abe’s expected announcement of a snap election.

Abe plans to announce the snap election later in the day, and the polls are expected to be held on Oct. 22.

He ordered his cabinet on Monday to compile new economic stimulus measures in a package worth around 2 trillion yen ($17.80 billion) by the year-end.

The 10-year cash JGB yield was flat at 0.020 percent in afternoon trade.

The 10-year JGB futures contract finished down 0.01 point at 150.84.

The two-year JGB yield was flat at minus 0.140 percent after earlier inching half a basis point lower to minus 0.145 percent.

“The U.S. two-year zone has also coincidentally been very strong recently, due to U.S. monetary policy, though we cannot say that this has had a direct effect on its Japanese counterpart,” said Ayako Sera, senior market economist, Sumitomo Mitsui Trust.

The yield on two-year U.S. Treasury notes jumped to 1.451 percent on Wednesday last week, its highest level since November 2008, after the U.S. Federal Reserve announced a plan to start shrinking its balance sheet and signalled one more rate hike later this year.

In the superlong zone, the 20-year JGB yield added half a basis point to 0.545 percent, and the 30-year JGB yield also inched half a basis point higher to 0.820 percent.

The Bank of Japan did not tweak its JGB purchase amounts in its buying operations on Monday. It offered to buy 280 billion yen of one- to three-year JGBs, 300 billion yen of three- to five-year JGBs, and 410 billion yen of five- to 10-year JGBs, all in line with amounts at its previous operations in those zones.

Bank of Japan Governor Haruhiko Kuroda said on Monday the BOJ can help keep long-term currency moves stable by aiming for 2 percent inflation, a level many other central banks have set as their price targets.

“Foreign exchange rates fluctuate due to various factors in the short run. But their moves reflect inflation differentials between countries in the long run,” Kuroda said in a speech to business leaders in Osaka, western Japan.

Reporting by Tokyo markets team; Editing by Sherry Jacob-Phillips

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