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The Japanese government bonds continued to trade lower on Monday after the Bank of Japan in its monetary policy meeting disappointed investors by keeping its key policy rate unchanged along with no additional bonds buying programme. However, the central bank pledged to increase purchases of ETF buying at an annual pace of 6 trillion yen.
The benchmark 10-year bond yield, which moves inversely to its price, rose 3-1/2 basis points to -0.134 percent, the yield on 5-year note also jumped 2 basis points to -0.225 percent, the yield on super long 30-year note bounced 1-1/2 basis points to 0.297 percent and the short-term 2-year JGB yield climbed 1/2 basis point to -0.239 percent by 07:30 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.
According to Reuters, the Bank of Japan is expected to issue 50-year bonds, and if the BoJ makes a commitment to hold them for a very long time, that would be like helicopter money. Further, the BoJ could be posed for closer cooperation with PM Abe's fiscal spending policy. Also, the BoJ could buy municipal bonds or debt issued by state-backed entities in addition to JGBs.
The Bank of Japan Friday released the outline of its JGB plans wherein it mentioned the purchase of JPY 8-12trln of JGBs each month effective from August 1.
In terms of economic data release, Japan National CPI inflation fell at the fastest pace since 2013 to -0.4 percent y/y in June, in the line of markets consensus of -0.4 percent y/y fall, as compared to -1.1 percent, shall pressurise the BoJ to ease monetary policy in its next two-day policy meeting, which is scheduled to take place on September 20-21.
Meanwhile, the benchmark Nikkei 225 closes up 0.40 percent at 16,635.77 and the broader Topix index closed marginally lower 0.07 percent to 1,321.83 points.
