Japanese 10-year government bonds rallied Tuesday, driving yields decidedly lower, after the Bank of Japan affirmed its easy-money policy prescription, leaving the country one of the last with an aggressively accommodative plan in place a decade after the 2007-09 financial crisis.
Global government bonds saw some buying, pushing yields lower, after the central bank, led by Gov. Haruhiko Kuroda, vowed to maintain longstanding strategies, albeit with tweaks, including incorporating forward guidance for the first time, with an emphasis that it intends to maintain rates at ultralow levels for an “extended period of time.”
During a news conference following its policy statement, Kuroda said the BOJ would allow a wider range around its target of zero for the yield on the 10-year Japanese government bond, according to The Wall Street Journal. The central bank boss said the target would remain zero, but would be allowed to rise to range as wide as 0.2%, compared with a range between minus 0.1% and 0.1%, in a nod to criticism that the bank’s efforts to maintain superlow levels were taxing the central bank and weren’t sustainable.
Kuroda & Co. said policy makers would buy government bonds at an annual pace of around ¥80 trillion ($720 billion)—a statement investors see as a gauge of the bank’s commitment to easing.
The tweaks ultimately mean that the BOJ, which continues to struggle to nudge its annual inflation target to around 2%, will be a buyer of assets, a fact that is viewed as bullish to bond prices. For that reason, the BOJ, dialed back its inflation forecasts. It sees core inflation rising just 1.1% in the current through March, compared with 1.3% previously, and is projecting inflation will hit 1.5% from 1.8%.
The Japanese 10-year note TMBMKJP-10Y, -53.51% yielded 0.044%, in recent trade, compared against 0.106% on Monday, according to FactSet data. The yield moves representing the sharpest since about 2016. Yields on 10-year Japanese bonds had been an intraday day peak at 0.112% just ahead of the BOJ decision, before retreating.
Meanwhile, the 10-year government bond yield TMUBMUSD10Y, -0.66% lost 3 basis points to 2.947%, the 2-year note yield TMUBMUSD02Y, +0.15% retreated by 0.8 basis point to 2.661%. The 30-year bond yield TMUBMUSD30Y, -1.01% or long bond, shed 3.7 basis points to 3.067%.
“The BOJ confirmed the bulk of its policy stance, keeping the policy rate at -0.10% and confirming a target for the 10Y yield at around 0%. However, in a sign that the fight against low inflation might last longer than expected, the central bank cut its inflation outlook in all fiscal years and introduced some elements of flexibility that will allow it to make the easing more sustainable going forward,” wrote analysts at UniCredit in a Tuesday research note.
The moves at the BOJ kick off a busy week of central bank updates, with the Federal Reserve set to kick off its two-day policy meeting later Tuesday. Although the Jerome Powell-led Fed isn’t expected to raise rates at the conclusion of this coming gathering, investors will look for insights about the health of the economy and the impact of tariff clashes endorsed by the Trump administration. Later in the week, the Bank of England is expected to lift interest rates on Thursday in only its second rate increase in a decade.
Looking ahead, bond investors will focus on a barrage of data, including key measures of inflation, including the Fed’s preferred gauge, the personal-consumption expenditures price index, or PCE.
Reading on personal income, consumer spending and core inflation due at 8:30 a.m. Eastern Time Employment cost index for the second quarter also due at 8:30 a.m. Case-Shiller home price index for May due at 9 a.m. Chicago PMI set for 9:45 a.m. Consumer confidence index due at 10 a.m.Want news about Asia delivered to your inbox? Subscribe to MarketWatch's free Asia Daily newsletter. Sign up here.
