Japan’s Yields Fall to 4-Month Low as Fed Holds Policy, BOJ Buys

Japanese government bonds rose, sending yields to the lowest in four months, as Treasuries surged following a surprise hold in U.S. monetary policy and as the Bank of Japan bought debt for the sixth time this month.

The BOJ offered to buy 600 billion yen ($6.1 billion) in JGBs, part of its more than 7 trillion yen in purchases each month that aims to defeat deflation and spur growth. Pressure may mount on the BOJ to expand stimulus further, a policy board member said today. The Federal Reserve yesterday maintained the pace of its bond buying, spurring the biggest drop in U.S. Treasury yields in almost two years.

“JGBs are being bid as expectations for higher U.S. yields have been largely pushed back,” said Takafumi Yamawaki, the Tokyo-based chief rates strategist at JPMorgan Chase & Co., one of 23 primary dealers obliged to bid at sovereign debt sales. Demand for 10-year Japanese bonds may peak at current levels unless there’s a global economic slowdown, he said.

Japan’s 10-year yield slid four basis points to 0.665 percent as of 2:39 p.m. in Tokyo, according to Japan Bond Trading Co. That was the biggest drop since Sept. 9 and the lowest level since May 10. The five-year rate declined 2 1/2 basis points, or 0.025 percentage point, to 0.240 percent, also the least since May 10.

The 20-year JGB yield touched 1.59 percent, the least since June 3, while the 30-year rate reached 1.73 percent, a level not seen since Aug. 30.

The Fed maintained its quantitative easing program, known as QE, under which it buys $45 billion in Treasuries and $40 billion of mortgage-backed securities each month. Median forecasts of economists surveyed by Bloomberg News projected the central bank would cut Treasury purchases by $5 billion and leave MBS buying unchanged.

‘Forced’ Response

Takahide Kiuchi, the BOJ board member most openly critical of its monetary policy, said the central bank may come under pressure to expand easing.

“I can’t deny the possibility that the Bank of Japan will be influenced by external factors such as market expectations and will be forced to respond in such a way,” Kiuchi said today in a speech in Hokkaido, northern Japan.

The BOJ said today it would buy 400 billion yen in JGBs ranging from five to 10 years in maturity and 200 billion yen in bonds due in more than 10 years.

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