Japan yields rise to levels when BOJ began negative-rate policy

Bloomberg

A global bond selloff has sent Japan’s benchmark yield to a level last seen when the central bank introduced its negative interest-rate policy in January 2016 to revive a weakening economy. The 10-year yield rose two basis points to 0.155 percent, after a rout in Treasuries that saw similar-maturity US yields jump to the highest level since 2011. The advance will test the Bank of Japan’s newly-adopted objective to allow the benchmark to fluctuate more before it steps in to intervene.
“Japan’s bond market is entering uncharted territory,’’ said Toru Suehiro, senior market economist at Mizuho Securities Co. in Tokyo. “Yields could be rising more considering the sell-offs in Treasuries, but expectations of a BOJ move appear to be limiting the rise in yields.”
The BOJ is under increased pressure to scale back its ultra-loose monetary policy as global counterparts, especially the Federal Reserve, turn more hawkish. While the central bank has been tapering its bond purchases that have led to market distortions, Governor Haruhiko Kuroda and his peers have maintained their commitment to keeping rates extremely low for an extended period.
The central bank said July 31 that it would allow the 10-year yield to deviate by as much as 0.2 percentage points around zero percent. The advance has taken the yield past the 0.145 percent level seen on Aug. 2, which prompted the BOJ to slap down the advance by offering to buy 400 billion yen ($3.5 billion) of debt.

GLOBAL ROUT
The BOJ will probably refrain from boosting purchases in the 10-year maturities until the benchmark yield rises toward 0.2 percent rapidly, according to Shuichi Ohsaki, chief rates strategist for Bank of America Merrill Lynch in Japan.
Treasury yields surged following stronger-than-anticipated reports on US services and private-sector payrolls. The jump may signal a turning point for a market that some argue has underestimated US growth and the pace of Fed interest-rate hikes.
The repercussions of the move in Treasuries were felt far and wide, with bond yields rising in Australia and New Zealand. The Bloomberg Dollar Spot Index climbed to its highest since mid-August, while the Japanese yen rebounded from an 11-month low.
Yields on Japan’s so-called super-long bonds have been rising of late as the BOJ on Sept. 21 reduced buying of securities due in more than 25 years. It then lowered the purchase range for the sector for October under its monthly plan announced a week later.
The changes came amid calls from insurance companies to let yields in the world’s second-largest debt market climb.

GOOD TIMING
“Japan’s 10-year yield isn’t expected to extend its advance rapidly given that the BOJ’s buying in that zone is still very strong,” said Ohsaki of Bank of America Merrill Lynch. “Investors will increasingly look for a good dip-buying timing as the yield rises past 0.15 percent.”
The 40-year yield rose 2.5 basis points to 1.105 percent, while the 30-year yield climbed four basis points to 0.95 percent. The 1 percent level for the latter is seen as critical in prompting long-term Japanese investors to shift some money back into the yen from higher-yielding overseas debt.
The yen gained 0.1 percent to 114.37 against the dollar, after earlier touching 114.55 — its weakest since November 2017.