(Bloomberg) -- Japan’s 10-year bond yield slipped to levels unseen since July 2016, intensifying a debate among traders that the monetary authority is tolerating lower yields amid a global debt rally.
The yield dropped 1.5 basis points to minus 0.25%, as renewed concerns about world growth and the U.S.-China trade war drives investors to the safety of fixed-income assets. The move takes the JGB benchmark deeper below the bottom of the Bank of Japan’s target range. The central bank had in July 2018 doubled its targeted range for the yield from 10 basis points around zero.
The 30-year U.S. bond yield hit a record low this week, while the 10-year yield fell below below 1.5% for the first time since August 2016. As demand for havens increases, speculation has been rising that the BOJ will widen the range further. BOJ Deputy Governor Masayoshi Amamiya indicated earlier this month that such a move was possible, while Governor Haruhiko Kuroda had said in June that it’s appropriate to view the target band flexibly.
READ: Yields Sinking Below Target Puts Spotlight on BOJ’s Response
“Global yields are sinking or approaching zero, adding momentum for Japanese investors to return to super-long Japanese government bonds,” Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., wrote in a note Friday. “Against this backdrop, it’s unlikely that the drop in yields will stop even when the 10-year yield at minus 0.25% serves as a milestone.”
Friday’s Operation
While the BOJ has the option of reducing its bond purchases to stem the decline in yields, it is seen as being wary about making changes that could run counter to the easing bias among major central banks and add fuel to the yen rally. Even so, investors are eagerly waiting to see what it does at its regular operation on Friday -- where it is set to buy bonds in the key five-to-10 year zone.
The probability is high for the BOJ to take an action, such as cut purchase amounts at today’s regular market operation to stem the recent decline in yields, Katsutoshi Inadome, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, wrote in a note.
To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani
©2019 Bloomberg L.P.
Advertisement