TOKYO, Dec 16 (Reuters) - Japanese government bond prices eased on Friday, with the 10-year yield briefly hitting a 10-month high, as the bonds rout in the U.S. showed no signs of ebbing though strong results of the Bank of Japan’s bond buying stemmed the losses.
Big falls in U.S. bonds since last month on expectations President-elect Donald Trump’s policies will boost economic growth and inflation have pressured JGBs, posing a challenge to the BOJ’s policy to keep JGB yields under its control.
In early Friday trade, the 10-year JGB yield rose to 0.100 percent.
Many market players have regarded that level as the upper limit of the range in which the BOJ wants the 10-year yield to stay, even though the central bank has not explicitly said what its policy target - of “around zero percent” - really means.
After a small amount of trading was done at 0.100 percent, the 10-year yield stepped back to 0.085 percent, since many investors assumed the BOJ could take measures to bring down yields.
The BOJ can send the strongest message to markets by offering to buy an unlimited amount of bonds at a specific level, such as 0.10 percent, just as it did on shorter maturities last month.
Or it could increase its buying in that maturity at its next operation, sending an indirect signal to markets that it is not comfortable with current levels.
The BOJ took a step similar to the latter on Wednesday when it increased buying in superlong bonds, after their yields shot up to highest levels since February-March.
In an unusual move, the BOJ also made an pre-announcement on Wednesday that it planned to buy super long bonds on Friday.
Yields on the longest end of the yield curve have been capped since then.
The BOJ’s buying on Friday drew limited amount of selling from market players, helping to boost sentiment.
Superlong bond yields dipped as a result, with the 20-year yield falling 1.5 basis point to 0.600 percent, slipping further from Tuesday’s 10-month high of 0.650 percent.
The 30-year yield fell 2.0 basis points to 0.695 percent , having fallen more than 10 basis points from nine-month high of 0.805 percent touched on Tuesday.
“The BOJ’s action had an announcement effect. The market conditions would be favourable until the year-end, given big redemption on Dec 20 and the limited supply of new offers,” said Koichi Sugisaki, vice president of research at Morgan Stanley.
“But I won’t say JGB yields have peaked. It all depends on global bond markets,” he added.
The 10-year yield last stood at 0.085 percent, up 1.0 basis point on the day while the 10-yearJGB futures price fell 0.22 point to 149.50. (Reporting by Hideyuki Sano; Editing by Shri Navaratnam)