JGBs trade higher following BoJ’s weaker economic assessment; no impact of steady policy rate

The Japanese government bonds traded higher at the end of Asian session Friday after the Bank of Japan (BoJ) in its 2-day monetary policy meeting, concluded early today, cut its economic assessment, while maintaining monetary policy on hold, in line with market participants had anticipated.

The yield on the benchmark 10-year JGB note, which moves inversely to its price, fell slightly to -0.040 percent, the yield on the long-term 30-year hovered around 0.570 percent and the yield on short-term 2-year edged 1 basis point lower to -0.158 percent by 05:50GMT.

The Bank decided, by a 7-2 majority vote, to set the following guideline for market operations for the intermeeting period – it will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

Further, the central bank will purchase JGBs so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.

With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about JPY80 trillion.

With regard to the outlook, Japan's economy is likely to continue its moderate expansion, despite being affected by the slowdown in overseas economies for the time being.

Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, mainly against the background of highly accommodative financial conditions and the underpinnings through government spending, according to the BoJ’s Statement of Monetary Policy.

Meanwhile, the Nikkei 225 index closed 0.76 percent higher at 21,448.50, while at 05:00GMT, the FxWirePro's Hourly JPY Strength Index remained highly bearish at -151.45 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex