TOKYO — Benchmark Japanese government bonds fell on Tuesday after a bond purchase plan by the Bank of Japan indicated reduced support for shorter-dated securities.
The 10-year JGB yield rose 2.5 basis points (bps) to 1.475 percent after touching 1.485 percent, its highest level since June 4.
Futures on the debt fell to their lowest levels since April.
Yields move inversely to prices.
For the July–September quarter, the BOJ said it will reduce purchases of shorter-dated JGBs while retaining its buying of debt with maturities longer than 10 years.
Beginning next April, the BOJ will reduce its monthly bond purchases by 200 billion yen ($1.38 billion) each quarter, it said following a two-day policy meeting. The move will mark a slower taper than the current pace of 400 billion yen reductions implemented quarterly.
“A reduction of bond buying amounts for maturities up to 10 years suggests that the BOJ wants the market to decide the yields,” said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities. “While for the super-long bonds, the BOJ kept the purchase amount the same to respond to the balance of supply and demand.”
The five-year yield rose 2 bps to 1.030 percent. The 20-year JGB yield increased 1.5 bps to 2.395 percent.
The BOJ began tapering its massive bond buying last year in a bid to wean the economy off decades of heavy stimulus, known as quantitative easing (QE).
This has coincided with weakening demand for long-dated debt among life insurers and other traditional buyers. At the same time, investors have grown wary of Japan’s fiscal outlook, as some lawmakers advocate for increased stimulus spending to attract voters ahead of the upper house election in July.
Meanwhile, demand for long-dated debt among life insurers and other traditional buyers has fallen off. And investors have grown wary of Japan’s fiscal outlook, as some lawmakers advocate for increased stimulus ahead of an election slated for July.
A slowdown in the tapering effectively signals a dovish shift and offers support to the JGB market, which has been shaken by weak demand at recent auctions and a surge in super-long yields to record levels last month.
“It appears that the bank is prioritizing market stability during the process of normalizing its balance sheet,” said Norihiro Yamaguchi, senior Japan economist at Oxford Economics.
“QE is likely to continue to be an essential policy tool, given that the JGB market could become more fragile amid heightened fiscal concerns and changes in the market structure,” he added.
