JGBs recover as fear over BOJ move subsides

The Japanese government bonds gained on Wednesday, following sharp sell-off in three years on fear that the Bank of Japan might reduce the pace of its bond buying. Also, investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil.

The benchmark 10-year bond yield, which moves inversely to its price, fell 2-1/2 basis points to -0.076 percent, the yield on 5-year note dipped nearly 3 basis points to -0.164 percent and the short-term 2-year JGB yield slid 1 basis point to -0.168 percent by 07:20 GMT.

According to Reuters, Finance Minister Taro Aso told reporters after the government's 13.5 trillion yen ($133.60 billion) stimulus package was announced on Tuesday that the ministry would consider 40-year debt in consultation with market participants.

Moreover, several active pension funds are seen trying to sell 2-year and 20year JGBs into the afternoon close, after a few regional investors sporadically bought 20-year JGBs on dips in the morning session. The results of today's JGB buying operations, which the BoJ published around noon, were mixed. Today, the BoJ bought 430 billion yen of 5-year to 10-year bonds, 200 billion yen of 10-year to 25-year bonds, 120 billion of 25-year to 40-year debt, and 25 billion yen of 10-year CPI-linked JGBs, they reported.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices remained weak as fuel oversupply and stuttering economic growth weighed on markets. The International benchmark Brent futures fell 0.26 percent to $41.69 and West Texas Intermediate (WTI) tumbled 0.05 percent to $39.49 by 07:20 GMT.

The Bank of Japan in its two-day monetary policy meeting, which concluded on Friday, surprised markets by keeping its key interest rate unchanged at prevailing minus 0.1 percent. Also, the central bank kept its base money target at 80 trillion yen.

However, the BoJ announced to increase to increase ETF purchases at an annual pace of 6 trillion yen, up from the current 3.3 trillion yen. This decision was supported by 7-2 votes as board member Takahide Kiuchi and Takehiro Sato opposed the majority decision.

In addition, the central bank in its statement proposed to increase the size of the lending programme that provides dollar funding to Japanese financial institutions and conducts comprehensive assessment of effects of QQE with negative rate policy at next rate review. They further added that the governor Haruhiko Kuroda as chairman of board instructed staff to prepare deliberations on assessment at BOJ's next meeting.

Meanwhile, the benchmark Nikkei 225 closed down -1.88 percent at 16,083.11 and the broader Topix index closed marginally lower 2.17 percent to 1,271.98 points.