TOKYO, Aug 1 (Reuters) - Japanese government bond prices slumped on Wednesday, with the benchmark futures falling more than a half point, as market players tested the Bank of Japan's commitment to allow for greater flexibility in yield moves.
The benchmark 10-year JGB futures dropped as much as 0.71 point to a one-year low of 149.98.
BOJ Governor Haruhiko Kuroda said on Tuesday the central bank will tolerate the 10-year JGB yield moving around 20 basis points from its policy target of zero percent, compared to around 10 basis points in the past.
His comments cleared the initial uncertainty in the market on what exactly the BOJ meant by granting greater flexibility for yield moves, giving a green light to sell beyond the previous market ranges.
"Because the BOJ has allowed yields to go up more, market players are reacting by selling," said Yuuki Fukumoto, researcher at NLI Research Institute.
The five-year yield rose 3.5 basis points to one-year high of minus 0.065 percent and the two-year yield rose to 13-month highs of minus 0.100 percent.
The 10-year JGB yield rose 5.5 basis points to 0.100 percent .
It had fallen on Tuesday after the BOJ said it will keep both long-term and short-term rates at current low levels for an extended period of time.
The introduction of the so-called forward guidance on policy surprised some market players who had expected the BOJ could hint that it's starting to prepare for an exit from its stimulus. (Reporting by Tokyo Markets Team Editing by Shri Navaratnam)