JGB yields edge higher, 2-year auction tepid as traders eye BOJ shift

Japanese government bond yields edged higher on Tuesday, and an auction of two-year notes met tepid demand amid expectations for the Bank of Japan to exit negative short-term interest rate policy in the new year.
The 10-year JGB yield was 1.5 basis points (bps) higher at 0.625 per cent as of 0430 GMT, while benchmark 10-year JGB futures fell 0.15 yen to 146.46.
The two-year JGB yield was flat at 0.035 per cent, but hadn't traded since the finance ministry announced the auction results, which saw the tail - a measure of demand that subtracts the lowest price at the sale from the average price—widen to 0.021 yen from 0.012 yen last month.
BOJ Governor Kazuo Ueda said on Monday that the likelihood of achieving the central bank's inflation target was "gradually rising" and that it would consider changing policy if prospects of sustainably achieving the 2 per cent target increased "sufficiently.".
The language differed slightly from Ueda's usual phrase, calling for the need to "patiently" maintain an ultra-loose policy for the time being.
"The BOJ looks set to end its negative rate policy by April at the latest," Mizuho Securities economists Yasunari Ueno and Shintaro Inagaki said in a research note.
"Rather than do nothing, it may need to make a leap of faith, changing policy even while some (economic) signals are still amber or red," rather than waiting for perfect conditions, "because the economic data in the real world are always going to be mixed," they said.
The BOJ's next policy meeting runs Jan. 22–23.
The five-year JGB yield rose 1 bp to 0.240 per cent.
In the superlong sector, the 20-year yield added 2 bps to 1.370 per cent and the 30-year yield gained 1.5 bps to 1.595 per cent.