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Japan May CPI 0.1% Y/Y; Energy Up

By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials see no imminent need to curb a rise
in Japanese government bond yields as the pace of gain remains modest and upside
pressure on bond yields may be eased by short-covering as the yen rises, MNI
     The BOJ view is underscored by its decision Wednesday to leave the scale of
its purchase of JGBs in the 5 to 10 year bucket at Y450 billion, unchanged from
the scale of the previous comparable operation on Oct 3.
     With no significant domestic factors seen pushing JGB yields sharply
higher, BOJ officials are continuing to pay close attention to developments in
U.S. Treasury bond market, where the outlook for yields remains uncertain.
     On Tuesday, the U.S. 10-year bond yield closed at around 3.20%, after
rising to 3.261% for the highest level since May 2011. The 10-year JGBs traded
at 0.150% in Wednesday, down 0.5 basis point from Tuesday's close of 0.155%.
     The hope is JGB yields move flexibly, reflecting economic developments and
price conditions as well as UST moves, but this doesn't mean the BOJ will allow
the 10-year bond yield to rise above +0.2% or fall below -0.2%. The BOJ could
take quick action to curb higher bond yields, such as a fixed-rate bond buying
operation, if the rise in the 10-year JGB yield was judged as too rapid and
looked like breaking above +0.2%, the upper end of the BOJ's acceptable range.
     However, as we noted Friday, if the pace of rise in the 10-year bond yield
deemed appropriate, the BOJ would examine whether the 10-year bond yield could
push above 0.2% and higher or how they should deal with higher yields.
     According to officials, the rise in JGB yields triggered by higher UST
yields is being eased by some short-covering in the bond market as the yen rises
in part on the back of the International Monetary Fund's decision to lower its
growth forecast of global economy in 2018 and 2019.
     Looking ahead, the results of Thursday's 30-year JGB auction will be
closely watched to gauge investors' demand for the new super-long bonds amid
concern the BOJ may reduce the scale of bond buying at the long end of the
     On Friday, the BOJ plans to conduct outright bond buying operations in the
1 to 3 years and 3 to 5 years, 10 to 25 years and more than 25 years buckets.
     The BOJ is looking for a chance to lower the scale of its purchase of
super-long bonds, if market conditions warrant, as supply-demand conditions at
the longer-end of the curve remain tight.
     On Sep 21, the BOJ reduced the scale of bond buying in the 25 years plus
bucket to Y50 billion from Y60 billion.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
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