Long-term JGB yields rise after BoJ reduces size of bonds purchases

Japanese government bonds slumped on Friday after the Bank of Japan reduces the size of its bonds purchases by 10 billion yen.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, climbed 1 basis point to 0.032 percent, the yield on long-term 40-year also rose nearly 2 basis point to 0.990 percent and the yield on short-term 2-year gained 1 basis point at -0.185 percent by 04:10 GMT.

The Bank of Japan trimmed its purchases of Japanese government bonds maturing in 25 to 40 years in its buying operations on Friday. The central bank offered to buy 90 billion yen ($807.97 million) of JGBs in that zone, down from 100 billion yen in its previous operation for those maturities.

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.

Meanwhile, Japan’s Nikkei 225 traded flat at 22,523.00 by 03:10, while at 04:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at -55.78 (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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