* Investors ponder BOJ's 'yield curve control' policy
* Superlong yields steady ahead of this week's 30-year sale
TOKYO Feb 7 Benchmark Japanese government bonds
edged higher on Tuesday, shrugging off tepid demand at an
auction of inflation-linked 10-year bonds, as investors
continued to puzzle over the Bank of Japan's stance on JGB
The 10-year JGB yield was down half a basis point (bp) at
0.095 percent, well below a one-year high of
0.150 percent notched on Friday, while 10-year JGB futures
finished up 0.11 point at 149.66.
Under its current monetary policy framework of "yield curve
control" introduced in September, the BOJ aims to guide the
10-year JGB yield to around zero percent.
"For now, shorter maturities, 2- to 5-year JGBs, still have
negative yields, while superlong yields have risen, so the BOJ's
'yield curve control' policy has indeed steepened the curve,"
said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank
"But it's been less than a half year since the BOJ started
this policy, so we need to wait to see what they do from now,"
she said. "In the meantime, there is an uncertain mood in the
market with investors' opinions divided on what the BOJ will do
The central bank has so far apparently refrained from any
steps to stem rising yields in the superlong zone, with
maturities of 20 years or longer, even as they have gained 30-50
basis points since the BOJ embarked on its latest policy.
On Tuesday, the 20-year yield and the 30-year
JGB yield were both flat at 0.715 percent and
0.900 percent respectively, ahead of a 30-year auction on
"I wish they would stop 'yield curve control' and just let
JGB yields move naturally, or as naturally as they can move when
the central bank is buying such a large quantity of JGBs," said
a fixed-income fund manager at a European asset management firm
On Monday, the central bank bought 450 billion yen ($4
billion) of bonds with maturity of more than five to 10 years,
following two separate purchases of 10-year JGBs on Friday,
underscoring the central bank's commitment to keeping the
benchmark yield in its desired zone.
But on Jan. 25, the BOJ surprised markets by refraining from
purchasing short-term bonds, which led many investors to
speculate that the central bank might be opting to gradually
trim its JGB purchases.
"BOJ is not helping matters by sending mixed messages," said
Neale Vincent, strategist at Nomura Securities in Tokyo.
JGB yields briefly crept off session lows on Tuesday after
lacklustre demand at the Ministry of Finance's sale of 400
billion yen of 10-year JGBs with a 0.1 percent coupon linked to
the consumer price index produced a the lowest price of 105.10,
with 25.7142 percent of the bids accepted at that price.
The sale drew bids of 2.61 times the amount offered, down
from the previous sale's bid-to-cover ratio of 3.21 times,
indicating less demand for the bonds.
Earlier in the session, JGBs took their cue from firmer U.S.
Treasuries. Japanese government debt often tracks its U.S.
counterparts, whose yields fell overnight on investors' concern
that U.S. President Donald Trump's promised pro-growth policies
have take a back seat to his immigration curbs and protectionist
Trump will welcome Japanese Prime Minister Shinzo Abe on a
U.S. visit later this week. Market participants await any
remarks on Japan's fiscal or monetary policy that might emerge
from their meeting, though trade and defense issues will likely
take centre stage.
Bond investor Bill Gross said on Monday that without
quantitative easing from the European Central Bank and the BOJ,
which he says keeps eurozone and Japanese yields artificially
low, the 10-year U.S. Treasury yield would "rather quickly" rise
to 3.5 percent and the U.S. economy would sink into recession.
(Reporting by Tokyo markets team; Editing by Simon