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year yield tops Bank of Japan’s ceiling as bets for policy shift build

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TOKYO — The yield on benchmark 10-year Japanese government bonds rose on Friday above the Bank of Japan’s new policy ceiling, reaching the highest in about eight years amid rising speculation the central bank could further tweak policy as soon as next week.

The 10-year JGB yield was 4 basis points higher at 0.54% as of 0142 GMT, the highest since June 2015.

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The yield continued to climb despite the Bank of Japan’s attempt to calm the market by announcing unscheduled purchase operations across bonds with one to 10 years left to maturity.

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The BOJ doubled the band that the 10-year yield can move in to 50 basis points either side of zero in a surprise decision last month. The next policy decision is due on Wednesday.

“The market is expecting at the next meeting that they will increase the band for the 10-year again,” said Naka Matsuzawa, chief Japan macro strategist at Nomura.

“I think it’s too early for the BOJ to give up. It still has ammunition to defend the 0.5% yield cap.”

Benchmark 10-year JGB futures fell to as low as 144.15 for the first time since March 2014.

Speculation that the BOJ could tweak policy again so quickly has been building with data this week showing Tokyo consumer prices, a leading indicator of nationwide trends, unexpectedly rose at double the central bank’s 2% target.

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Expectations built further after the Yomiuri newspaper reported on Wednesday that BOJ officials would review the side effects of massive stimulus on the bond market during their two-day meeting next week.

That same day, Uniqlo store operator Fast Retailing said it would hike wages by as much as 40%, concentrating mainly on Japan, giving hope that salaries might start to catch up to consumer price increases.

The 10-year JGB yield had been bumping against the 0.5% cap for the previous four sessions, after the Ministry of Finance raised the coupon on the newest notes to match that level. (Reporting by Kevin Buckland; Editing by Christopher Cushing and Muralikumar Anantharaman)

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