BoJ officials are closely watching the risk....>

JGBS: BoJ officials are closely watching the risk of a sudden rise in bond

yields in light of a slight steepening of the largely flat UST yield curve. BOJ

officials don't think the U.S. Treasury 10-year yield will rise to a long-term

equilibrium rate of 2.75% anytime soon because wages and inflation are still

tame. They also believe any sharp rise in JGB yields would be temporarily and

limited unless the U.S. 10-year yield rises above the key level. The BoJ

increased 5-10 Year purchases by Y50bln July 7, when the 10-year JGB yield rose

close to 0.110%, in order to curb a further rise in the 10-year yield. The move

indicated that the BOJ considered the 10-year bond yield above 0.110%

"undesirable".The BOJ stands ready to tackle an undesirable surge in JGB yields

with an increase of its outright bond buying or a fixed-rate bond buying

operations, the Bank believes the current yield curve based on 10-year bond rate

around 0% is necessary to keep the momentum toward achieving its 2% inflation

target. BOJ officials don't expect JGB yields to rise sharply because the

domestic inflation is still far from target, but they are watching for a rise in

U.S. inflation expectations, which could accelerate a rise in UST yields.