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Japanese Government Bond Yields Surge Amidst Speculation of BOJ Policy Adjustment

Rising yields prompt foreign investors to sell off Japanese government bonds, anticipating potential changes in the Bank of Japan's monetary stance
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Surging yields are triggering a sell-off of Japanese government bonds (JGBs), led by foreign investors speculating on potential changes in the Bank of Japan’s (BOJ) monetary stance at the upcoming policy board meeting.

Yields on 10-year JGBs reached 0.885%, the highest since July 2013, nearing the BOJ’s 1% cap set in July. Overseas investors played a significant role, selling 904.2 billion yen ($6 billion) in long-term Japanese bonds between Oct. 15 and Oct. 21.

This trend comes amidst speculation that the BOJ might revise its yield curve control (YCC) policy, potentially raising the long-term yield cap to 1.5%. The market for overnight index swaps is thriving, reflecting heightened caution about potential BOJ policy shifts. The short-term interest rate futures market is also bustling in anticipation of a policy adjustment.

Transactions are increasing, especially from small and mid-sized European and American funds with branches in Asia, while interest from domestic financial institutions is gradually rising, noted Ryosuke Seo, director of the Tokyo Financial Exchange’s wholesale business department.

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