TOKYO: Japanese government bond yields fell on Wednesday as expectations for the Bank of Japan’s rate hike receded after dovish comments from its influential deputy governor.
BOJ’s Shinichi Uchida said on Wednesday the central bank will not hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.
The two-year JGB yield, the most sensitive to the BOJ’s policy rate, fell 2 bps to 0.265%. The five-year JGB yield fell 1.5 basis points to 0.41%.
“Uchida’s remarks eased the hawkish image of the BOJ.
He clarified that the BOJ is not in a hurry to raise the rates as the market expected,“ said Naoya Hasegawa, chief bond strategist at Okasan Securities.
After the BOJ unexpectedly raised its policy rate to 0.25% last week, the market turned cautious about the rate hike pace, driving expectations that the policy rate could be raised to 0.5% this year and to 0.75% by next year.
Markets reacted to Uchida’s comments by paring the probability of a rate rise in October to just 25%.. Futures contracts pegged to the BOJ’s overnight call rate expiring in March indicates the policy rate to be at 0.32%.
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The 10-year JGB yield fell 1 basis point (bp) to 0.8%, after hitting 0.905% earlier in the session. The 30-year JGB yield surged 8.3 bps to 2.185%, ahead of an auction for the bonds with the same maturity on Thursday.
“The market is cautious about the outcome after the weak auction of 10-year bonds on Tuesday,” said Miki Den, senior Japan rate strategist at SMBC Nikko Securities The 40-year JGB yield rose 10.5 bps to 2.440%.
The 20-year JGB yield rose 3 bps to 1.735%.
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