Japanese bond yields just surged higher

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Japanese government bond yields rose to one-year highs after the Bank of Japan disappointed investors by not buying bonds with maturities of 25 years or more.

The 10-year benchmark JGB yield rose to as high as 0.150%, its highest since January 2016. The 20-year yield hit 0.710%, its highest since February 2016.

The BoJ on Friday offered to buy 70 billion yen of JGBs with less than a year to maturity and 450 billion yen of five- to 10-year debt.

The central bank, after its policy meeting this week, maintained a pledge to guide the 10-year yield at around 0%.

The BoJ said that it will conduct JGB purchases at an annual pace of around 80 trillion yen with the aim “to achieve the target level of the long-term interest rate specified by the guideline”, in this case 0%.

While the the BoJ left rates unchanged, it raised its economic growth forecast to 1.5% in the 2017 fiscal year, up from its previous forecast of 1.3% offered in November last year. Growth in the 2018 fiscal year is now expected to come in at 1.1%, 20 basis more than it’s previous assessment. The upbeat assessment has led investors to speculate the central bank might allow long-term rates to nudge higher.

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