JGBs Extend Rally After BoJ Reaffirms YCC Parameters, 10-Year Yield Returns To Target

JGB futures re-opened sharply higher after the Tokyo lunch break, during which the BoJ demonstrated its steadfast commitment to persistent powerful monetary easing. The contract returned from the trading pause at a new session high of 147.78 before trimming gains.

• The past week saw a tug-of-war between the BoJ and market participants questioning the sustainability of its firm grip on the yield curve, even as local analysts expected the Bank to stand pat today.
• JGB futures crept higher in the lead-up to the policy announcement, with the upswing possibly facilitated by comments from FinMin Suzuki, who said he hopes the BoJ will persist in efforts towards achieving its inflation target.
• The Policy Board indeed maintained its YCC settings, forward guidance and overall assessment of the economy despite recent yen weakness and growing pressure on the 0.25% cap on 10-Year yield.
• The yield on 10-Year JGBs rose to the highest level since 2016 this morning, with the Bank conducting another round of unlimited fixed-rate debt purchases in the afternoon.
• But the decision to stick with ultra-loose monetary policy stance dragged benchmark 10-Year yield back into the target range and it last sits at 0.22%.
• The 7-10-Year sector covered by the Bank's daily bond-purchase operations outperforms on the cash curve, with yields mostly lower as we type, save for the super-long end. JGB futures have stabilised trade at 147.45, 24 ticks above previous settlement.
• All eyes are on the press conference with BoJ Gov Kuroda this afternoon.