JGBs Rally, Take BoJ’s Debt-Buying Reduction in Stride

The Japanese government bond market retained its bullish momentum and edged up on Friday, taking in stride a move by the central bank to trim the amount of debt it bought at a regular purchasing operation.

The benchmark 10-year JGB yield declined by half a basis point to 0.015 percent, its lowest since May 2.

The yield had declined significantly the previous day as JGBs tracked U.S. Treasury yields, which fell on signs of fresh political turmoil in Washington.

Treasury yields did nudge up overnight as the market braced for the gathering of central bankers at Jackson Hole, Wyoming.

But JGB yields continued heading lower, albeit at a slower pace, after data on Friday showed that inflationary pressure in Japan was making relatively slow progress.

Japan’s core consumer price index rose 0.5 percent in July. While this marked the seventh straight month of gains, the increase was largely driven by higher fuel costs.

The data showed subdued wage growth discouraged consumers from increasing spending, underscoring the challenge that the Bank of Japan faces in achieving its ambitious 2 percent inflation target.

Shorter-dated JGB maturities outperformed, with the five-year yield dropping 1.5 basis points to a 3-1/2-month low of minus 0.135 percent.

The longer-dated bonds lagged after days of successive gains. The 30-year yield nudged up half a basis point to 0.825 percent, pulling away from a near two-month low of 0.815 percent set on Thursday.

The BOJ on Friday reduced the amount of five- to 10-year JGBs it purchased at its regular debt-buying operation to 300 billion yen ($2.74 billion) from 330 billion yen at the previous operation.

The BOJ often tweaks the amount of JGBs it purchases at these operations as part of its yield curve control scheme designed to keep the 10-year yield roughly around zero percent.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
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