Japan's 2-year bond yield hits 13-year high on rising bets on BOJ policy shift

TOKYO : Japan's two-year government bond (JGB) yield hit a 13-year high on Friday amid growing speculation that the Bank of Japan (BOJ) could exit from its negative rate policy.

The two-year JGB yield, highly sensitive to the BOJ's short-term rate policy, rose to 0.2 per cent earlier in the session, its highest since April 2011, before retreating to 0.195 per cent, up 0.5 basis point (bp) from the previous session.

"The market has already priced in the BOJ's policy tweak and it seems that investors are not making active trade right now," said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.

"They are waiting for an outcome of the BOJ meeting this month, and they will start working on their strategy based on yield movements after the meeting."

Expectations for the BOJ to end to negative interest rates as soon as March grew stronger after the central bank governor and one of its board members said on Thursday the economy was moving towards its 2 per cent inflation target.

Market players are now eyeing how fast the BOJ would raise the short-term interest rate after pulling it out of the negative territory.

BOJ's deputy governor Shinichi Uchida last month said the central bank is unlikely to raise interest rates aggressively even after ending its negative rates.

Under its stimulus programme, the BOJ guides short-term interest rates at -0.1 per cent and the 10-year government bond yield around 0 per cent.

The five-year yield was flat at 0.38 per cent.

The 10-year JGB yield rose to 0.74 per cent, its highest since Feb. 20, and was last up 0.5 bp at 0.73 per cent.

The 20-year JGB yield rose 1.5 bps to 1.49 per cent. The 30-year JGB yield rose 1.5 basis points to 1.775 per cent. The 40-year JGB yield rose 1.5 bps to 2.02 per cent.