JGBs slip ahead of U.S. jobs data as market ponders BOJ plans 

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Japanese government bonds fell on Friday, sending some yields to five-month highs, as the usual buyers took a step back ahead of the U.S. jobs report later in the global day and some investors fretted about the Bank of Japan’s JGB purchasing plans.

The benchmark 10-year yield rose 2.5 basis points to minus 0.020 percent, its highest level since March.

The 20-year yield rose 5 basis points to 0.405 percent , its highest since April 1, while the 30-year yield rose 6 basis points to 0.500 percent, its highest since March 31.

“Buyers don’t like this kind of volatility,” said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo. “If policy is clarified, then people will step up and buy, but until we know, buyers will be sidelined.”

The BOJ’s next meeting on Sept. 20-21 coincides with that of the U.S. Federal Reserve. Some investors believe U.S. policymakers could raise interest rates as early as this month if economic data is strong enough.

The U.S. August nonfarm payrolls report is even more in focus than usual, after Federal Reserve Vice Chair Stanley Fischer said last week that the employment data would be a factor in the timing of the central bank’s interest rate hikes.

Employers are expected to have added 180,000 jobs in August, according to the median estimate of 89 economists polled by Reuters.

If the Fed opts to tighten, “then maybe the BOJ doesn’t need to do anything at all,” Matsukawa said. “And ahead of nonfarm payrolls, buyers are quite limited, so that’s why we’re seeing the long end selling off.”

A 30-year auction next week also weighed on longer maturities. The Ministry of Finance will offer 800 billion yen ($7.74 billion) of JGBs in that tenor.

The BOJ also refrained from buying any longer maturities in its asset purchase programme on Friday. It offered to buy 400 billion yen of 1- to 3-year JGBs, 420 billion yen of 3- to 5-year JGBs, and 430 billion yen of 5- to 10-year JGBs.

Most economists polled by Reuters expect the BOJ to ease policy further this month, though views are divided.

The BOJ declared it will conduct a “comprehensive assessment” on the impact of its stimulus measures at its next meeting. Some JGB market participants have expressed concerns that the BOJ might refrain from buying additional JGBs, or could even reduce its purchases of long bonds.

While there is no consensus on what the BOJ’s next step will be, some believe it may lead to a steeper yield curve.

At its last policy meeting on July 29, the BOJ expanded its stimulus with a modest increase in its purchase of exchange-traded funds (ETFs) but did not raise its JGB purchases or take other steps.

“They disappointed in July, and it could happen again,” said a fixed-income fund manager at a European asset manager in Tokyo.

Source: Reuters

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