JGBs narrowly mixed ahead of BoJ’s policy decision, bank seems committed to keep 10-year yields at zero

The Japanese government bonds traded narrowly mixed Monday ahead of the Bank of Japan’s (BoJ) last monetary policy decision for 2016.

The benchmark 10-year bond yield, which moves inversely to its price, fell 1/2 basis point to 0.07 percent, the long-term 30-year bond yield rose nearly 1 basis point to 0.68 percent and the yield on short-term 2-year note dipped nearly 1 basis point to -0.18 percent by 06:20 GMT.

We foresee that the bond prices will keep drifting between small gains and losses in quiet trading due to a long global Christmas holidays.

The Bank of Japan is expected to release its two-day monetary policy meeting decision on Tuesday, December 20, and it is widely expected to keep its benchmark interest rate unchanged at -0.10 percent, while continue to buy bonds worth 80 trillion annually. Also, the central bank seems committed to keep its benchmark 10-year bond yields near zero percent mark.

This is also consistent with the latest Reuters poll, in which all 15 analysts agreed with the steady monetary policy while targeting bond yields rate. Additionally, it is worth remembering that the JPY weakened significantly against the dollar after Republican candidate Donald Trump was announced as a winner of 2016 Presidential election in November, giving the central bank a sweet spot amid rising global inflation expectations.

Moreover, the BoJ is also expected to keep its inflation and economic growth forecast unchanged until it achieves the target range. However, the demand for more stimuli has been declined post weakening of JPY and strengthening of Nikkei 225 index. Also, it is worth noting that the main focus of the market will on the BoJ’s economy view, the recent jump in 10-year yields and the measures to counter yields growth.

Meanwhile, the benchmark Nikkei 225 closed 0.5 percent lower at 19,391.60. While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained slightly bearish at -77.43 (lower than -75 represents bearish trend).