Japanese government bond prices fell steeply on Monday with the benchmark 10-year yield hitting its highest in nearly six months, following reports the Bank of Japan is actively discussing changes to its policies.
The 10-year yield rose as much as six basis points to 0.090 percent, a level last seen in early February and within sight of 0.110 percent, the level at which the BOJ has conducted unlimited buying in the past to stem rise in JGB yields.
Sources said the BOJ is holding preliminary discussions on making changes to interest-rate targets and stock-buying techniques, with a focus on ways to make the massive stimulus program more sustainable.
"Whatever explanation the BOJ makes, if it makes policy adjustments that will lead to higher rates, that will make market players aware that the BOJ is in the phase of withdrawal from its massive stimulus," said Takafumi Yamawaki, head of currency and fixed income research at J.P. Morgan Securities.
BOJ Governor Haruhiko Kuroda started massive bond buying in 2013 with an aim to eradicate deflationary pressures and boost prices.
But Japan's inflation is seen as unlikely to reach the BOJ's 2 percent target even after the central bank, which frequently buys more JGBs than the government issues, soaking up more than 40 percent of government debt.
The central bank has been gradually reducing its bond buying since September 2016, when it set a policy target of zero percent in the 10-year JGB yield, relegating its quantitative bond buying target to a secondary role.
Despite that, JGB yields had been falling, as investors needed to buy a certain amount in a shrinking pool of available bonds.
The 20-year yield rose 6.0 basis points to 0.535 percent, off 1 1/2-year low of 0.475 percent touched earlier this month.
The 10-year JGB futures opened 0.52 points lower at 150.45 and last stood at 150.58, down 0.38 point. The 10-year yield last stood at 0.075 percent, up 4.5 basis points on the day.