JGB 10-year yields hit 6-month high following investors’ speculation over BoJ’s policy change ahead of July meeting

The Japanese 10-year government bond yields hit a 6-month high Monday as investors’ speculation rose over a possible change in the monetary policy by the Bank of Japan (BoJ) ahead of the central bank’s two-day meeting on July 30-31.

According to media reports, the BoJ is considering to make preliminary changes to its interest-rate targets as well as stocks-buying techniques, aimed at making the massive stimulus program, started by Governor Haruhiko Kuroda in 2013, more sustainable.

However, we refrain from believing that the central bank will throw any big surprises, since Japan’s inflation is at a very low level and until prices improve as per expectations over the near future.

The yield on Japan’s benchmark 10-year bond, which moves inversely to its price, jumped 5 basis points to 0.08 percent, the yield on the long-term 30-year surged 8-1/2 basis points to 0.76 percent and the yield on short-term 2-year remained 2 basis points higher at -0.10 percent by 05:00GMT.

Japan's inflation is seen as unlikely to reach the BoJ's 2 percent target even after the central bank, which frequently buys more JGBs than the government issues, soaking up more than 40 percent of government debt.

The central bank has been gradually reducing its bond buying since September 2016, when it set a policy target of zero percent in the 10-year JGB yield, relegating its quantitative bond buying target to a secondary role.

Meanwhile, the Nikkei 225 index slumped 1.39 percent to 22,387.50 at 05:10, while at 05:00GMT, the FxWirePro's Hourly JPY Strength Index remained slightly bullish at 89.65 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex