MNI INSIGHT: BOJ To Monitor 10-Yr JGB Yield Post-US Jobs Data

--BOJ Officials To Continue Watching Pace Of Any JGB Yield Increase

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials will pay close attention later Friday

to see whether the release of key U.S. economic data pushes Japanese Government

Bond yields above Thursday's near two-year high, MNI understands

     However, their focus remains of the speed of any 10-year JGB yield rise

toward, or even through, the 0.2% upper end of the BOJ's target range.

     They also remain vigilant as to whether higher superlong bond yields

increase the upward pressure on the 10-year yield above 0.2%, and the BOJ stands

ready to curb higher superlong yields to help cap the 10-year if needed.

     --RISING PACE KEY

     If 10-year yields continue to rise following the release of the September

U.S. employment report and that rise is deemed to rapid, the BOJ would conduct

an outright bond buying operation and/or a fixed-rate bond buying operation to

prevent the 10-year bond yield from rising past 0.2%. 

     Any such operation would unlikely take place outside of Tokyo trading

hours.

     However, 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.

     In afternoon trade Friday, the 10-year JGB was trading at 0.151%, just shy

of the 0.155% level seen Thursday, which was the highest yield seen since

January 2016.

     BOJ officials are focused on how the U.S. jobs data for September due out

later today, with concerns that signs of strong job creation and higher wages

will see increased concern over inflation, trigger higher U.S. Treasury yields,

which in turn will push up JGB yields.

     --HIGHER UST YIELD

     The BOJ didn't react to higher 10-year JGB yields Thursday, despite the

yield rising above the 0.145% level that triggered an Y400 billion extraordinary

bond buying operation on Aug 2. Back then, the central bank deemed a 10 bps rise

in 10-year yields in just 2 days as too rapid.

     This week's rise to 0.155% was deemed appropriate -- to date at least -- as

the speed of the rise was seen as moderate and in response to higher UST yields.

     BOJ officials in charge of daily operations are required to trade the

10-year JGB yield "around zero percent" within a range of -0.2% to +0.2% that

the BOJ board decided. The central bank stands ready to curb higher yields

through outright bond buying operations 'flexibly and appropriately', if the

rise in 10-year bond yield is deemed too rapid.

     The BOJ hopes JGB yields will move flexibly reflecting economic and price

condition developments, as well as overseas bond movements.

     The BOJ decided in July to allow the 10-year bond yield to move in a range

of -0.2% to +0.2%, doubling the previous unofficial range of -0.1% to +0.1%,

aiming at creating an environment for bond yields to move flexibly.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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