Yields on 10-year JGBs hit highest since February on hawkish Yellen’s testimony; BoJ’s intervention to continue, says Kuroda

The Japanese government bonds slumped Friday after the Federal Reserve Chair Janet Yellen in her testimony to the Joint Economic Committee (JEC) of Congress said that there is a higher possibility for an interest rate hike in December.

The benchmark 10-year bond yield, which moves inversely to its price, rose 2-1/2 basis point to 0.035 percent, the yield on long-term 30-year note climbed 1-1/2 basis points to 0.585 percent and the yield on short-term 3-year note bounced 1/2 basis point to -0.125 percent by 06:00 GMT.

Federal Reserve Chair Janet Yellen, in her congressional testimony, strengthened bets that the central bank was on the right path to hike interest rates in December. This was the first direct signal from the Fed after December last year.

The JGBs have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield jumped 5-1/2 basis points to 2.32 percent. The probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 96 percent.

However, the Bank of Japan’s Governor Haruhiko Kuroda said that the central bank will continue to intervene in the fixed income market to keep the JGB yields at a target level of zero percent.

According to Reuters, under BoJ’s current monetary policy scheme outlined in September to adopt a strategy of JGB yield curve control, the BoJ has said it will guide the benchmark 10-year yield to around zero percent in an effort to stoke stubbornly low inflation and boost growth.

On Thursday, the BoJ offered to buy unlimited amount of JGBs with 1 to 3 years of maturity at a yield of 0.020 percent above the previous close. It also offered to purchase an unlimited amount of JGBs with 3 to 5 years to maturity at 0.019 percent above the previous close, Reuters added.

Meanwhile, the benchmark Nikkei 225 closed up 0.53 percent at 17,957.50 and the broader Topix index closed up 0.38 percent higher to 1,428.46 points.

While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained slightly bearish at -93.91 (lower than -75 represents bearish trend).