Japanese bonds plunge as Kuroda remains sceptical about policy easing

The Japanese government bonds plunged Monday as investors moved away from safe-haven buying after the Bank of Japan governor Kuroda said that they were limited on what the central bank can do on two-day monetary policy meeting scheduled on September 21.

The benchmark 10-year bond yield, which moves inversely to its price, rose nearly 5 basis points to -0.009 percent, the super-long 30-year JGB yield climbed 3 basis points to 0.537 percent and the short-term 2-year JGB yield increased 1/2 basis point to -0.180 percent by 06:30 GMT.

Bank of Japan Governor Kuroda said that there are limits to what the BoJ can do in the sense it cannot underwrite debt due to legal constraints. He said that even within current framework there is ample room for further easing. He added that the first issue to analyze is what factors have hampered the achievement of price target and what should one bear in mind when conducting monetary policy is not its limit but the comparison between its benefits and costs. Negative rates have had an impact on market liquidity, banks' profits, so need to assess this policy, he added.

Further, Kuroda said that a reduction in the level of monetary policy accommodation will not be considered in the comprehensive review and the balance between benefits and costs of monetary easing can change depending on the situation. He further added that monetary policy should be conducted in a flexible manner and comprehensive review is conducted with the aim of achieving 2 percent price target at the earliest possible time. The BoJ should always prepare policy options to address situations where drastic measures are warranted.

According to recent Reuters poll, 60 percent of economists see the Bank of Japan easing in September 21; 40 percent see them stay unchanged. Pollsters are split on possible policy action and over 50 percent said the BoJ will adopt more flexible wording on inflation targeting.

Lastly, the trading volumes are expected to be thin as the US and Canadian markets remain closed today on account of Labour Day.

Meanwhile, the benchmark Nikkei 225 closed up 0.66 percent at 17,037.63 and the broader Topix index also closed 0.23 percent higher to 1,343.85 points.