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JGBs Fall Amid Speculation of BOJ Policy Change

Posted on: Monday, 6 March 2006, 18:00 CST

Tokyo, March 6 (Jiji Press)--Japanese government bonds skidded lower Monday, weighed down by mounting speculation about the Bank of Japan's monetary policy change as early as this week.

In futures trading on the Tokyo Stock Exchange, the benchmark March contract on 10-year JGBs ended down 0.22 point from Friday at 135.79. Volume shrank to 31,946 contracts from Friday's 63,920.

The key contract touched the day's low of 135.76 right after the opening, dragged down by Friday's decline of U.S. Treasury securities.

It failed to overcome the sluggish start and remained stuck in negative territory for the rest of the day amid wariness over the Japanese central bank's two-day policy meeting through Thursday.

Cash bonds also came under selling pressure. In late interdealer trading, the yield on the newest 277th issue of 10-year JGBs, carrying a 1.6 pct coupon, stood at 1.635 pct, up from 1.620 pct late Friday.

Following Friday's release of a bigger-than-expected rise in Japan's core consumer price index for January, speculation built up further that the BOJ may not wait until April to end its quantitative easing policy, in place since March 2001 to beat deflation, and shift to a conventional policy of targeting short- term interest rates.

With the market pricing in this week's decision by the BOJ, investors are now focusing their attention on the bank's guidepost under a new policy regime and the timing of an interest rate hike, a brokerage house official said.

At a parliamentary committee meeting Friday afternoon, Japanese Prime Minister Junichiro Koizumi said the government will not make any specific request to the BOJ about its policy steering.

The comment produced little surprise on the JGB market, with investors taking it as an indication that he will tolerate the anticipated end of the supereasy monetary policy, another brokerage house official said.

As the market is beginning to restore calmness after factoring in the BOJ's policy change, the bank's inaction this week may trigger a temporary wave of buybacks, the official said.END

Source: Jiji Press English News Service

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