TOKYO, Jan 22 (Reuters) – Japanese government bonds were
mostly supported with the five-year Japanese government bond
yield hitting a record low on Tuesday after the Bank of Japan
announce it would commit itself to open-ended asset buying.
As expected, the Bank of Japan adopted a 2 percent inflation
target and pledged to extend asset buying into 2014 with no
time-limit.
The five-year debt yield fell to as low as 0.140 percent
, the lowest yield recorded ever since Japan
started issuing five-year bonds in 2000, and last stood at 0.145
percent, down 0.5 basis point on the day.
Yuya Yamashita, strategist at JPMorgan Chase, said some
market player may be viewing the BOJ’s open-ended commitment as
an effective guarantee that low rates will stay for a long time,
thereby helping medium-term bonds such as five-year bonds.
Still, its foray to a record low surprised many analysts,
including Yamashita, as the yield could have risen because the
BOJ did not cut its 0.10 percent interest on excess reserves.
Indeed, the benchmark three-month euroyen futures price
fell 1.5 basis point to 99.765 as the BOJ did not cut
the rate, which has served as a floor for all money market
rates.
Still, JGBs were supported by expectations of more asset
buying down the road given that the central bank is now
committed to achieving 2 percent inflation — something that has
not happened in Japan for more than two decades.
“We’ll have to see how hard the BOJ will press on the
accelerator pedal from now on. If this means they always needed
to do something until inflation rises to two percent, they would
need to ease every month,” said Katsutoshi Inadome, fixed income
strategist at Mitsubishi UFJ Morgan Stanley Securities.
The 10-year JGB yield also dipped 0.5 basis point to 0.730
percent while the benchmark 10-year JGB futures
price rose 0.04 point to 144.45.
On the other hand, longer maturities such as the 30-year
have been pressured by concerns that bold BOJ steps could one
day lead to inflation.
The 30-year bond yield rose 0.5 basis point to 1.970 percent
, while the 20-year yield rose 1.5 basis point to
1.750 percent, boosting the 10-20 year yield
spread to a record high of 102 basis points
The steepening in the yield curve also reflects mounting
concerns about Japan’s snowballing public debt, which amounts to
more than 200 percent of its economy.
While a huge pool of Japanese private savings has helped
spare Japan from the type of turmoil that hit indebted countries
in Europe, many investors think Japan’s funding capability could
become more vulnerable in the future unless it can boost growth.
