Japan hits BOJ yield cap for 3rd day on eve of key policy decision

TOKYO: Japan’s 10-year bond yield rose for the third straight time in Tuesday’s session as speculation swirled that policymakers could tweak their stimulus settings when the two-day meeting ends Wednesday. Exceeded Bank of Japan (BOJ) policy cap.

Yields on 10-year government bonds rose 0.5 basis points to 0.505% at 0820 GMT, but only one trade was executed so far at 0136 GMT.

The benchmark 10-year JGB futures rose just 0.2 yen to close at 144.84, registering a second straight day of modest gains after reaching its lowest level since April 2014 on Friday.

“There is a strong sense of caution about taking new positions for tomorrow. The market is thin,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

Calming by the day, the benchmark yield hit 0.51% on Monday before surging to a seven-and-a-half-year peak of 0.545% on a turbulent Friday. That day, however, it eventually returned to 0.5% after a wave of BOJ emergency purchases totaling about 10 trillion yen ($77.81 billion).

So far this month, the central bank has taken on more than 17 trillion yen in debt, an unprecedented amount that calls into question the sustainability of the program.

The stakes are high for Governor Haruhiko Kuroda and his colleagues, with speculators waiting to sniff out any signs the central bank is headed for the exit door after decades of stimulus. .

Bond bears have continued to attack since the central bank unexpectedly doubled the 10-year yield band to 0-50 basis points last month.

The meeting is the penultimate meeting for Kuroda, who coordinated Japan’s ultra-loose policy before stepping down in early April. His last date is his March 9th to his 10th.

Many market watchers expect Yield Curve Control (YCC) to continue until Kuroda’s successor is in place, but don’t discount the possibility of further corrections in the meantime.

Mitsubishi UFJ Morgan Stanley’s Muguruma said the BOJ didn’t want to be overly upset in the fourth quarter of Japan’s fiscal year – a time when investors need to close the books quickly – and said that from April to June Said to wait until the quarter of the month.

“There’s not much left for the BOJ to do other than abandon the YCC framework,” Muguruma said.

($1 = 128.5100 yen)