Japan Yields Drop to Records as BOJ Meets Amid Brexit Concern

  • Policy gathering ends tomorrow, economists forecast no change
  • Polls have shown campaign for U.K. vote to leave EU in lead

Yields on Japan’s government bonds fell to records across the board, limiting the prospects that the nation’s central bank will expand unprecedented stimulus when it concludes a two-day meeting Thursday.

Japan’s bond market is heading for its best first half of any year since 1995 after the Bank of Japan introduced negative interest rates to add to unprecedented purchases of about 80 trillion yen ($752 billion) a year of government debt. Demand has also been fueled by global economic and political risks. Germany’s 10-year sovereign debt yield fell below zero on Tuesday for the first time, as multiple surveys showed the “Leave” campaign ahead of the “Remain” side with the Brexit vote looming next week.

“In the global risk-off environment, few want to sell ahead of the June 23 referendum,” said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo. “The decline in yields is accelerating with buying in a one-way market.”

The 10-year yield fell to an unprecedented minus 0.195 percent as of 3:27 p.m. in Tokyo. The rally also sent 20- and 30-year yields to historic levels at 0.135 percent and 0.21 percent, respectively. Five-year yields dropped to an all-time low of minus 0.295 percent and two-year yields slid to minus 0.285 percent. Forty-year yields declined to 0.245 percent.

The plunge in yields may reduce the chances the central bank will expand stimulus at a gathering that concludes Thursday in Tokyo.

“There is no logic in the BOJ saying it will cut negative rates further to drive down yields because yields are falling for reasons other than Japan’s monetary policy,” said Hiroyuki Kubota, an independent financial analyst who previously was a research manager at Fisco Ltd. in Tokyo. “The rally in the JGB market is purely from moves related to the Brexit concerns. It’s excessive and appears to be bubbly.”

About a quarter of analysts surveyed by Bloomberg expect an expansion of stimulus, while more than half of those polled predict action at the meeting in July.

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