The Japanese bonds plunged on Monday as short-term investors cashed in profit on expectation of further Bank of Japan (BoJ) easing in the up-coming two-day monetary policy meeting, which will push bonds yield lower across the curve. The yield on the benchmark 10-year, which moves inversely to its price, moved higher 28.21 pct to -0.084 pct and 2-year bonds yield climbed 3.21 pct to -0.271 pct by 0620 GMT.
The Bank of Japan will hold its two day monetary policy meeting on 27-28 April. We foresee that the Bank of Japan will cut its monetary policy rate by 10bp to -0.2 pct and also increase its current qualitative measures such as Exchange traded fund (EFT) and Real estate investment trusts (J-REIT) from current levels of 3 trillion and 90 billion Japanese yen, respectively. The BoJ's 9-member policy board is also expected to decide policy rate and update forecasts inflation and growth figures.
According to recent Reuters poll, out of 16 analysts 8 said that the BOJ will take easing steps at 27-28 April meeting, 3 expected in June and 5 said in July. Apart from this, 10 analysts were confident to say that the BOJ will adopt a combination of cutting rates deeper into negative territory and boosting asset purchases.
On the other hand, Bloomberg reported on its website earlier today that the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further. The move would provide relief to financial institutions by reduce the pressure the negative rates are putting on the banking sector. It would also effectively provide scope to further lower the deposit rate.
“This suggests that the BOJ might not increase its bond buying amount if it does ease, and investors with positions centred in the 20-year zone are taking the opportunity to sell them,” said a dealer at a foreign brokerage in Tokyo to Reuters.
Moreover, the BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility.
Further, we expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end.
Meanwhile, the Nikkei 225 closes down -0.76% at 17,439.30.
The material has been provided by InstaForex Company – www.instaforex.com