TOKYO – Japanese government bond (JGB) yields fell on Tuesday after the Bank of Japan (BOJ) maintained its ultra-loose monetary settings, reversing their rise prior to the announcement.
Benchmark 10-year JGB yield fell to 0.635 percent after rising to a session high of 0.685 percent.
Yields on longer-dated notes fell sharply, with the 30-year yield slipping 5 basis points (bps) to 1.555 percent, its lowest since Aug. 10. The 40-year yield fell 7 bps to 1.765 percent.
“With the market focus on the timing for the BOJ’s exit from its negative rate policy, super-long JGBs tend to perform relatively better than those with maturities less than 10 years,” said Kentaro Hatono, a fund manager at Asset Management One.
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“Today’s market was a reflection of that expectation.”
Sharp declines in yields are also due to thin trade as most foreign players are already away for holidays, Hatono added.
However, declines will be short-lived and the market will remain volatile due to a lack of liquidity as the BOJ holds a significant portion of JGBs, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.
The BOJ’s move was widely expected, underscoring policymakers’ preference to wait for more clues on whether wages will rise enough to keep inflation durably around its 2 percent target.
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The central bank also made no tweak in its forward guidance, where it currently pledges measures to defend its easy monetary policy without hesitation.
JGB yields have been volatile this month, with the 10-year yield swinging between a low of 0.620 percent on Dec. 6 and rising to 0.8 percent on Dec. 8, in part due to speculation that the BOJ could end its negative rate policy soon.
The BOJ has conducted aggressive bond buying to contain rising yields as it defends its ultra-low rate policy, which has hurt market conditions and distorted the yield curve.