Japanese bonds and equities fell immediately after the Bank of Japan's decision to leave its monetar...
Japanese bonds and equities fell immediately after the Bank of Japan's decision to leave its monetary policy unchanged, dashing hopes it would expand the supply of yen that banks can use to buy debt
The six-year bond, a favoured target for such purchases, posted its biggest decline in six weeks
Investors were hoping the 21 September meeting of BOJ policy-makers would provide more cheap funds to buy bonds with. Declines in 10-year bonds were limited after the yen surged, which could keep Japanese investors away from stocks and foreign bonds
Masaru Hamasaki, a manager in the treasury department at Zenshinren Bank said: "The central bank let the bond market down. As a result of the bank's decision it was inevitable that the yen would rise, while stocks and bonds were forced lower
The new benchmark No. 216, 10-year bond fell 0.30, or ¥150 per ¥50,000 bond, to 99.2, raising the yield 3.5 basis points to 1.7%. The previous benchmark No. 215, 10-year bond fell 0.18, or ¥87.50 per ¥50,000 bond, to 101.7. The yield rose two basis points to 1.690%. Bond futures contracts for March delivery fell 0.63 to 131.4
Shorter-dated bonds fell the most because the central bank was expected to increase funds in the banking system by purchasing securities with a maturity less than five years. The yield on the two-year bond rose 5.5 basis points to 0.2%, while the yield on the six-year bond rose 2.5 basis points to 1.1% as its price suffered its biggest decline since 10 August. Euroyen futures for June delivery fell 0.07 to 99.72, after falling to a low of 99.7
Yasuo Hayashi, a trader at Sumitomo Trust & Banking said: "Medium-term paper is taking the brunt of the disappointment that central bank isn't going to have a more aggressive policy." The BOJ voted to keep monetary policy unchanged at its fortnightly meeting yesterday, saying that an increase in money supply wouldn't have "a visible impact'' on interest rates or currency
The BOJ cut its target for the interbank overnight loan rate to 0.15% on 12 February and subsequently poured trillions of yen in the money market to lower the key rate to 0.02%. To keep the rate near zero, the bank has continued to leave a ¥1 trillion ($9.5 billion) surplus at the start of each day. Traders had speculated that amount could be increased to ¥1.5 trillion or that the bank may consider buying more bonds outright
Demand for bonds with a maturity less than 10 years may also be weak until the government's sale of ¥1 trillion in four-year bonds on 30 September, said traders
"There's no reason to go out and buy medium-term bonds today ahead of this week's new four-year bond supply,'' said Hayashi. Some investors said longer-dated bonds may be supported by strength in the yen. The dollar traded at a low of 104.4, more than ¥2.5 below yesterday's Tokyo high of 107.3. That helped drive the Nikkei 225 index down 3.4% on concern it will erode exporters' profits when they repatriate them
"I thought BOJ would do something to supply more money but they should do it later when the yen gets stronger again,'' said Keisaku Ujihara, a fund manager at Sanwa Asset Management Co, which manages ¥1 trillion in assets
The BOJ policy board was originally seen as compromising on monetary policy in exchange for US help in joint yen selling to rein in the currency's gains. Analysts believed such agreements have been made between the US and Japan in conversations between Finance Minister Kiichi Miyazawa and Federal Reserve Governor William J. McDonough
Shuntaro Takenoya, a bond trader at Sanwa Securities, said: "A stronger yen will hurt stocks and help prolong the deflationary environment.''
Following the announcement, the Japanese Finance Minister Kiichi Miyazawa commented on the chances of independent Japanese yen-selling, "It depends on the situation. In the case of joint intervention, Japan and the US must have a unified view. It's just like a tango, one-sided moves cannot succeed. There must be an accord when we carry out large-scale intervention. I don't think each side stands on totally different ground
Miyazawa also said it's "extremely difficult" at this time to say how Japan will ask for cooperation of other nations to stem the yen's strength, during a weekend meeting of finance ministers and central bank governors of the Group of Seven major industrial nations. Asked if he supports Bank of Japan Governor Masaru Hayami's stance on monetary policy, Miyazawa said: "If I am asked my opinion, I would say that's so
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