Japan’s 10-Year Bond Yield Crosses BOJ’s Ceiling on Talk of Policy Tweak

Reuters

10:40 JST, July 28, 2023

TOKYO, July 28 (Reuters) – Japan’s 10-year government bond yield crossed the Bank of Japan’s (BOJ) ceiling for the first time in more than four months on Friday, driven by speculation of a policy tweak hours ahead of the central bank’s monetary decision.

The 10-year JGB yield JP10YTN=JBTC rose 7 basis points (bps) to 0.505%, its highest since March 3, before last trading at 0.500%.

The yield jumped after a local report said the BOJ will discuss allowing long-term interest rates to rise above its 0.5% cap by a certain degree on Friday, when it concludes a two-day rate review.

Under the new idea to be proposed at the meeting, the BOJ would maintain the 0.5% cap but allow the 10-year yield to rise above that level depending on market developments, the Nikkei newspaper reported.

“The report has prompted investors to sell the 10-year JGBs,” said Takeshi Ishida, strategist at Resona Holdings.

“Whether this move would be the first step to tweak or abolish the yield curve control policy, or just an adjustment to continue the framework would depend on the BOJ’s economic outlook to be disclosed later in the day.”

Under yield curve control (YCC), the BOJ guides the 10-year bond yield around 0% and sets an allowance band of 0.5% above and below that target.

The 20-year JGB yield JP20YTN=JBTC jumped to 1.140%, its highest since July 18, before pulling back somewhat to trade at 1.095%, 5.5 bps higher from the previous session.

Benchmark 10-year JGB futures 2JGBv1 fell as much as 1.19 yen to 147.22, its lowest since July 14.