Japanese government bonds rally ahead of BOJ inflation report

TOKYO: Japanese government bonds rallied on Monday as markets awaited an inflation report from the central bank to gauge the timing of the next interest rate increase. The benchmark 10-year JGB yield, which last week touched a 29-year high of 2. 49%, fell 2 basis points (bps) to 2. 4%. The five-year yield, which jumped to a record 1. 9% on April 13, slid 1 bp to 1. 825%. Yields move inversely to bond prices. Bank of Japan Governor Kazuo Ueda said last week that Japan is facing rising inflation from a “negative supply shock, ” which is more difficult to rein in with monetary policy than inflation driven by strong demand. A key factor for JGB investors on Monday will be the afternoon release of the BOJ’s quarterly survey of inflation expectations, according to Miki Den, a senior Japan rate strategist at SMBC Nikko Securities. “The market’s main scenario appears to be that a rate hike will be put off next week, ” Den said in a note. “However, even if an April rate hike is indeed postponed, Governor Ueda’s stance at the press conference could change depending on the data available leading up to the monetary policy meeting. ” The BOJ last raised its key rate in December, lifting it to 0. 75%, as it seeks to normalise monetary policy after more than a decade of massive stimulus. Bets for another hike at the BOJ’s April 28-29 meeting stood at about 60% earlier this month. But recent signals from central bank officials have reduced those expectations, as imported energy costs from the Middle East crisis cloud the inflation picture and risk a slowdown in the economy. Tokyo Tanshi interest rate swaps data on Friday indicated just an 18% chance of a hike next week. The two-year JGB yield, the one most sensitive to BOJ policy rates, was unchanged at 1. 36%. ‐Reuters

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