TOKYO, Sept 21 (Reuters) - Yields of some super long Japanese government bonds rose to their highest levels in more than a year on Friday after the Bank of Japan trimmed the amount of debt it offered to buy at a regular operation.
The 20-year JGB yield rose 2.5 basis points to 0.645 percent, its highest since April 2017. The 30-year yield climbed 4 basis points to 0.890 percent, highest since October 2017, and the 40-year yield rose to a 10-1/2-month high of 1.04 percent.
The central bank on Friday offered to buy 50 billion yen ($443 million) of 25- to 40-year JGBs as part of its debt-purchasing scheme, down from 60 billion at the previous operation on Tuesday.
The BOJ regularly tweaks the amount of JGBs it buys at the operations, which are conducted as part of its yield curve controlling scheme.
But Friday’s reduction appeared to have caught the market off guard.
“The market’s view was that the BOJ would not reduce the amount of super long JGB purchases until next month, so today’s reduction came as a surprise,” said Makoto Suzuki, senior bond strategist at Okasan Securities.
“The recent weakening of the yen and gains by stocks may have prompted the BOJ to reduce super long JGB purchases at an earlier-than-expected timing.”
The yen fell to a two-month low against the dollar on Friday, while the Nikkei surged to an eight-month peak.
The BOJ has deployed massive monetary easing, with its huge bond-buying part of this scheme, in a bid to lift Japan out of deflation.
Its easing has played a role in helping the yen depreciate. A weaker yen, in turn, has helped support equities of an export-reliant Japan.
However, the central bank’s extensive easing has its downsides. Liquidity in the bond market has dried up, while banks have endured pain under years of near-zero rates.
The BOJ decided at its July policy meeting to make its policy sustainable, allowing the 10-year yield to fluctuate more. It also said it will conduct its bond-buying in a “flexible manner”, suggesting it will continue to slow the pace of its purchases.
Politicians, who once pressured the BOJ to ramp up stimulus to beat deflation, have also sent signals that they are becoming more amenable to the idea of an exit from easy policy.
Prime Minister Shinzo Abe said last week the BOJ’s ultra-easy policy should not last forever, signaling his hope of paving the way toward an exit from the radical stimulus programme.
$1 = 112.73 yen Reporting by the Tokyo markets team; Editing by Richard Borsuk