July 27, 2018 / 5:56 AM / 21 days ago

JGB yields off 1-year high after BOJ steps in more aggressively

TOKYO, July 27 (Reuters) - The 10-year Japanese government bond yield slipped off a one-year high earlier in the day on Friday after the Bank of Japan conducted special, unlimited buying for the second time this week.

The BOJ surprised the market by offering to buy at a yield of 0.100 percent, lowering the levels at which it buys by one basis point from previous occasions for the first time since it had introduced the measure in 2016 to ensure its policy goal of guiding the yield around zero percent.

JGB futures erased losses to last stand at 150.60, down 0.01 point.

The benchmark 10-year cash JGB yield stepped back to 0.095 percent, after having risen to as high as 0.105 percent, its highest level in more than a year, earlier in the day.

The market has been rocked this week following various media reports that the BOJ is considering making adjustments to its policy, possibly by reducing its asset purchases so it can keep stimulus in place for a longer period, at its policy review on July 30-31.

It was the first time the BOJ conducted the fixed-rate buying twice in a week. The BOJ offered to buy 10-year JGBs at 0.110 percent.

“Perhaps the BOJ wanted to send a stronger message by offering to buy at a lower yield today, rather than at the same level as before,” said Shinichiro Kadota, senior forex and rates strategist at Barclays.

“But this doesn’t have any implications on what it plans to do next week,” he added.

In fact, many market players remained sceptical of a major policy change at the upcoming meeting.

Most market players expect the BOJ to stop short of making immediate policy changes and to say instead that it will study ways to reduce side-effects of its prolonged easing, such as hits to banks’ profits.

The 20-year yield stood flat at 0.580 percent while the 30-year yield was also flat at 0.800 percent . (Reporting by Hideyuki Sano; Editing by Sunil Nair)

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