In Just Hours, Kuroda Kills Weeks of Selling in Japanese Bonds

(Bloomberg) -- In just a matter of hours, Bank of Japan Governor Haruhiko Kuroda killed a trade that has been building for weeks in the nation's sovereign bonds.

Five consecutive weeks of foreign net selling of Japanese bond futures gave way on Friday, as the contracts surged by the most in a year after Kuroda said he doesn't think it's necessary to widen the trading band around the BOJ's 10-year yield target.

His comments have helped made Japan bonds an outlier in major markets, with yields along the curve dropping -- the 30-year bond saw yields crash by more than 12 basis points -- even as reflation trades drive continued selling in global debt.

Traders have been speculating since January that the BOJ could allow the benchmark yield to fluctuate in a wider range than the current 20 basis points around zero, following local press reports. The thinking was a slight steepening of the yield curve could help improve the functioning of the bond market and take some pressure off beleaguered banks.

Investors had built up short positions in Japanese debt, most notably trend-following quant funds, although they may have been already taking profits before Kuroda's comments.

The potential policy tweak -- along with a global selloff in bonds -- helped drive a steady rise in yields this year, with the benchmark climbing as much as 16 basis points to 0.18%. Before Friday's sharp rally, 10-year bonds hadn't seen a week of gains this year.

The BOJ is concluding a review of its ultra-easy monetary policy, which it plans to release in March.

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