January 31, 2018 / 7:01 AM / 7 months ago

Japanese bonds rise after BOJ boosts buying; 10-yr yield off 6-1/2-mth high

TOKYO, Jan 31 (Reuters) - Japanese government bond prices edged up on Wednesday after the central bank boosted its buying in medium-term paper, a move seen as a warning shot against further rises in JGB yields and probably also aimed at dousing talk of an exit from its ultra-easy policies.

The Bank of Japan increased the amount it bought in government bonds with three to five years left to maturity to 330 billion yen ($3.03 billion) from 300 billion yen, a level it has maintained since September.

The increased buying came after the 10-year yield had risen to a 6-1/2-month high of 0.095 percent on Tuesday, near the BOJ’s widely perceived defence line of 0.11 percent.

The central bank has conducted unlimited buying of 10-year JGBs at that yield twice last year when rates were rising.

The BOJ’s policy guidance is to control the 10-year yield “around zero percent.”

“Globally bond yields have been rising so the BOJ must have been warily looking at when domestic bond yields will rise. I suspect they decided that it is time to act now,” said Yuuki Fukumoto, researcher at NLI Research Institute.

The central bank maintained the purchase amount of three other maturity zones it offered to buy on Wednesday - one to three-years, 10 to 25 years and 25 to 40 years.

Still, the enlarged buying of three to five year bonds was the first increase in any maturity zones since July. The BOJ has been slowly reducing its bond buying on the whole as its holding of JGBs grew to about a half of the entire market.

The 10-year JGB futures price rose 0.15 point to 150.32 , making the largest gain in two months and a half.

The yield on the benchmark 10-year cash JGBs fell 1.0 basis point to 0.080 percent while the five-year yield dipped 1.0 basis point to minus 0.085 percent.

The 20-year yield dipped 0.5 basis point to 0.590 percent.

Earlier this month, the BOJ cut its buying in 10-25 year and 25-40 year zones, sparking speculation that it was moving to unwind its massive stimulus.

The market talk appeared to catch the BOJ off-guard.

The summary of opinions at BOJ’s previous policy meeting published earlier on Wednesday showed one board member said the central bank should rectify its bond buying operations if a cut in bond purchase could be sending unintended signals on its monetary policy.

“Today’s increase in the BOJ’s bond buying would likely be based on practical and cautious judgement on the bond market’s conditions,” Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities, said in report.

“But for those who are far from the Japanese bond market, it will probably appear as an operation aimed at quelling the impact of unintended signals from the BOJ’s earlier operation.” (Reporting by Tokyo Markets Team)

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