Japanese bond yields hit multi-week highs amid BOJ stimulus taper speculation

Japanese bonds surge: Yields on Japanese government bonds surged to their highest levels in several weeks on Thursday, driven by growing expectations that the Bank of Japan (BOJ) could begin tapering its stimulus measures as early as next week. A lacklustre auction of 20-year securities further intensified selling pressure.

The increase in US bond yields from the previous day also contributed to the rise in Japanese yields, as investors contemplated the possibility that the Federal Reserve might delay interest rate cuts until after June.

The 10-year JGB yield climbed 2.5 basis points to 0.780 per cent, marking its highest level since December 11.

Heightened speculation regarding the BOJ's departure from its negative interest rate policy (NIRP) was fuelled by substantial annual pay hikes amongst Japanese corporations. 

Market stability measures

Reports suggested that the BOJ may provide specific guidance on its government bond purchases upon exiting NIRP and yield curve control (YCC) to prevent disruptions in the market. It's anticipated that the end of YCC will coincide with the exit from NIRP.

Analysts at BofA Securities indicated that while there's debate over whether the BOJ will act in March or April, it appears the central bank has already made its decision to move by the end of spring. They suggested that even if the BOJ exits stimulus at next week's meeting, it may continue its substantial JGB purchases to mitigate any sharp rise in yields.

Long-term yields rise

Other JGB yields also rose, with the 20-year yield climbing 3.5 basis points to 1.555 per cent, reaching levels not seen since February 1, and the 30-year yield increasing by 4 basis points to 1.845 per cent, its highest since January 24.

Meanwhile, the two-year and five-year JGB yields experienced more modest increases.

The decline in benchmark 10-year JGB futures reflected the overall trend, falling to 145.24 yen.

(With Reuters Inputs)