Thursday January 22, 09:37 AM
Longer-dated JGBs suffer on BOJ buying plan
By Rika Otsuka
TOKYO, Jan 22 (Reuters) - Shorter-dated Japanese government
bond futures rose on Thursday after the Bank of Japan sharply
revised down its growth outlook, while longer-dated debt slid on
a plan by the central bank to buy
JGBs outright.
As expected, the central bank on Thursday left the overnight
call rate target at 0.10 percent at the end of its two-day policy
meeting, while predicting the world's No.2 economy would contract
for two full years through March 2010.
The central bank said the economy would likely shrink 1.8
percent in the current fiscal year to March and contract 2.0
percent the following year, down from its forecasts issued in
October for growth of 0.1 percent and 0.6 percent, respectively.
'Traders bought back JGB futures, a little surprised by a
very pessimistic view on the economy by the BOJ,' said a senior
bond trader at a European brokerage.
Shorter-dated notes benefitted the most as the central bank's
economy outlook supported expectations that it would take some
time before Japanese interest rates start to rise.
The central bank also warned that the country faced two years
of deflation.
March futures were down 0.01 point at 139.64, off
the day's low of 139.21.
The benchmark 10-year yield edged up 0.5 basis points to
1.230 percent.
Longer-dated paper suffered after the central bank said it
would buy 900 billion yen ($10.1 billion) per year of JGBs with
maturities longer than 10 years at its outright JGB buying.
'The central bank was not as aggressive as investors had
hoped in the operations,' said Chotaro Morita, chief fixed-income
strategist for Japan at Barclays Capital.
The 30-year yield rose 3 basis points to 1.905 percent , while the five-year yield fell 2 basis points to
0.675 percent. The yield curve steepened, as a
result.
BOJ Governor Masaaki Shirakawa said on Thursday at his
post-meeting news conference that the central bank was not
thinking of buying other assets after announcing that it would
buy corporate bonds to help ease a funding squeeze.
'Governor Shirakawa picked his words carefully, trying not to
raise any speculation about the BOJ's next policy move,' said
Koji Ochiai, senior market economist at Mizuho Investors
Securities.
Ochiai added that bond investors were unlikely to pick up
JGBs on Shirakawa's comments alone.
Still, traders and analysts say the bond market will likely
advance in the near term, supported by the fast-deteriorating
economy.
Government data showed on Thursday that Japan's exports fell
a record 35 percent in December from a year earlier as the global
financial crisis battered its key export markets, pushing the
country's trade balance into the red for the third straight
month.
'Dismal economic data is pointing to outputs and exports
staying weak in the January-March quarter,' said Mari Iwashita,
chief market economist at Daiwa Securities SMBC.
'It's hard to think that JGB yields will rise,' she said.
($1=89.09 yen)
(Editing by Brent Kininmont)
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