Japan 10Y Yield Drops To -0.005%; 1st Time Neg. Since Nov. 16

     TOKYO (MNI) - The yield on the 10-year Japanese government bond fell to

-0.005% late Friday, dropping into negative territory for the first time since

Nov. 16, due to solid investor  demand.

     Earlier in the day, the BOJ reduced the scale of its purchases of Japanese

government bonds with a remaining life of 3- to 5-years to Y300 billion from

Y330 billion at the previous similar operation on Monday.

     Despite the BOJ's decision to reduce the scale of its buying, the operation

results were strong, indicating sentiment in JGB markets remained solid and

prompting investors to buy bonds in the secondary market.

     The reduction, which was expected by some market participants, is aimed at

curbing the recent drop in medium-term JGB yields. The yield on 5-year JGBs fell

to -0.145% on Thursday, the lowest level since May 10.

     On July 12, the BOJ increased the scale of its purchase of medium-term

bonds to Y330 billion from Y300 billion to stop the yields from rising rapidly.

     The drop in the 10-year bond yield is also caused by the prospect for

tighter supply-demand conditions in the bond market due to the expected large

amount of bond redemptions this month.

     A further drop in 10-year bond yield would prompt the BOJ to consider

reducing the scale of its buying with a remaining life of 5 to 10 years from

Y410 billion per auction.

     On August 25, the BOJ reduced the size of its purchases of Japanese

government bonds with a remaining life of 5- to 10-years to Y410 billion per

operation from Y440 billion, as largely expected. The cut in JGB buying, the

first since Aug. 16, was aimed at preventing the 10-year bond yield from falling

further amid continued tight supply-demand conditions.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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