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Japanese bonds gained on Wednesday following the Bank of Japan (BoJ) daily market operation ahead of the Thanksgiving holiday. In addition, with inflation still way below the central bank 2 percent target, the BoJ sees no immediate need to withdraw stimulus, providing required boost to the Treasury prices.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 0.023 percent, the yield on long-term 40-year also declined nearly 1 basis point to 0.975 percent and the yield on short-term 2-year slid ½ basis point at -0.201 percent by 04:10 GMT.
The Bank of Japan offered to buy 250 billion yen (USD2.22 billion) of one- to three-year JGBs, 300 billion yen of 3-5 years maturity of bonds and 410 billion yen of bonds maturing in five to ten years. The BOJ left the amount of JGBs it offered to buy in the other maturities unchanged. The central bank often tweaks the amount of JGBs it buys through its regular operations, which are intended to control the yield curve.
On Tuesday, BoJ Governor Kuroda said the impact on long-term interest rates as a side effect of monetary easing. He noted that an "excessive decline" in long-term and super long-term interest rates "may give rise to concerns about the rates of return on insurance and pension products". This could have a negative impact on the economy "through deterioration in people's sentiment".
He also mentioned the "reversal rate" -- the possibility that if the central bank lowers interest rates too far, capital constraints in the banking sector tighten as a result of the decline in net interest margins. This impairs financial institutions from carrying out their intermediation function, causing the effects of monetary easing to reverse.
In the United States, Treasuries saw a mixed performance on Tuesday during a relatively quiet session light on data of great significance.
Meanwhile, Japan’s Nikkei 225 traded 0.74 percent higher at 22,581.50 by 04:15, while at 04:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at 74.04 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
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