Japan is likely to reduce new issuance of super-long government bonds next fiscal year, Reuters reported on Wednesday, easing concerns about an oversupply of those bonds.
Super-long bond yields have hit record highs in recent sessions on concerns about the size of Prime Minister Sanae Takaichi’s debt-financed stimulus.
The yield on 20-year Japanese government bonds fell to a low of 2.94% and was last down 2 basis points at 2.965%.
On the other hand, two-year government bond yields reversed course, rising 1 bp to 1.11% after an auction of bonds with the same maturity sparked weak demand.
“The weak demand reflected expectations for the Bank of Japan’s next rate hike,” said Eiichiro Miura, senior general manager of investments at Nissay Asset Management. BOJ Governor Kazuo Ueda said Thursday that the country’s underlying inflation is gradually accelerating and steadily approaching the central bank’s target of 2%.
Short-term bond yields had risen sharply after the BOJ hiked interest rates to a 30-year high of 0.75% last week, amid growing prospects for another rate hike.
“The yen weakened as Ueda gave no indication of the next rate hike last week. And the weaker yen prompted investors to sell Japanese government bonds,” Miura said.
The yen maintained its momentum against the dollar on Thursday, rising 0.11% to 155.715 per dollar, as the market braced for possible intervention after a strong warning from the finance minister.
The five-year yield also reversed course and rose by 1 bp to 1,500%.
The yield on ten-year Japanese government bonds rose by 0.5 bp to 2.05%.
($1 = 155.7300 yen).
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