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JGB yields subdued in calm after BOJ storm

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TOKYO — Japanese 10-year government bond yields edged lower and futures rose on Thursday in the aftermath of the Bank of Japan’s decision to stick with stimulatory yield curve controls (YCC).

A well-received auction of 20-year JGBs also supported the market.

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The benchmark 10-year note yielded 0.41% as of 0518 GMT, down half a basis point from the previous day, when it plunged as low as 0.36%.

Ten-year JGB futures gained 0.3 points to 146.43, bringing them close to Wednesday’s one-month high of 146.65.

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Speculation had been building before the BOJ decision for another tweak to YCC after a surprise doubling of the 10-year yield’s allowable range to 50 basis points on either side of 0%.

The 10-year yield topped the 0.5% policy ceiling in each of the previous four sessions, including just ahead of the policy decision. Last Friday, it jumped as high as 0.545%, a level not seen since mid-2015.

“The outlook for Japanese inflation – and for a decisive change in the BOJ’s stance – hinges on wage growth,” BlackRock Investment Institute strategists Yuichi Chiguchi and Ben Powell wrote in a research note. “And that isn’t happening to the level the BOJ wants to see before getting comfortable in changing policy.”

However, with consumer prices rising at twice the central bank’s 2% target in the latest data for Tokyo, “markets will keep testing the BOJ’s resolve,” the analysts added.

The yield on 20-year JGBs sank 2 basis points to 1.325% after what one trader called “extremely strong” demand at an auction of the securities.

The five-year yield eased 1 basis point to 0.22%, while the 30-year yield inched 1 basis point higher to 1.53%.

Two-year JGBs had yet to trade, and last yielded 0.005% .

(Reporting by Kevin Buckland, additional reporting by Tokyo markets team; Editing by Eileen Soreng)

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