Japan's five-year government bond yield fell to its lowest levels in more than seven years Monday, triggering anxiety and fueling speculations over regulatory measures.
The Bank of Japan is expected to announce further easing, a move that is widely believed to take place immediately. The BOJ is expected to expand its liquidity-provision measures and has a number of options to implement the new financial strategy. It can do that by either boosting its supply of six-month loans or buying more short-term government bills.
The overnight loan rate is expected to be around 0.1%, it has remained at this position since December 2008.
Experts say that the 10-year yield is unlikely to drop below 0.9%. There is a possibility of that happening if the U.S. non-farm payroll data on Friday confirm a major deterioration. It can also drop below that threshold if the Japanese central bank increases the amount of bonds it purchases.
The lowest point for the five-year yield came on Monday when it fell to 0.24%. The last time it plummeted so low was in June 2003. The 10-year yield dropped 0.02 percentage point Monday to 0.935%.
Investors' hopes are pinned on expansive easing measures by the BOJ. There is, however, a fear that an expansion in the supply of short-term funds will not cause any improvements. Investors are also concerned about Japan's fiscal health if the BOJ purchases more government bonds. The BOJ is not known for its affinity to increase government bond purchase as it thinks that it can result in overspending by the government.
