Japan boosts defence of benchmark yield as global pressures persist
March 30, 2022
By Leika Kihara
TOKYO (Reuters) -Japan’s central bank stepped up efforts to stop a key bond yield rising on Wednesday, offering to buy more government debt, including through ad-hoc purchases, to keep interest rates low against the strong upward pull from global yields.
The Bank of Japan’s (BOJ) intervention comes as it seeks to keep monetary policy ultra-loose, even at the cost of fuelling further yen falls, which could push up import costs and hurt the economy.
The BOJ on Wednesday increased purchases of Japanese government bonds (JGB) with maturities of three to 10 years by a combined 450 billion yen ($3.66 billion) in Wednesday’s market operations. The central bank also offered to buy 250 billion yen in super-long JGBs in unscheduled, emergency operations.
“The BOJ will increase the number of auction dates and the amount of outright JGB purchases as needed, taking account of market conditions,” the BOJ said in a statement.
The move bolsters the BOJ’s intervention in the bond market, running from Monday through Thursday, with an offer to buy unlimited amounts of 10-year government bonds at 0.25%.
“The BOJ is trying to strengthen its message to the market, that it’s strongly committed to keeping financial conditions in Japan very accommodative and won’t accept those kinds of higher long-term bond yields,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.
“We need to remember the official BOJ target is 0% for the 10-year JGB, not 25 basis points.”
YIELDS DOWN
The yield on benchmark 10-year Japanese government bonds retreated from a more than six-year peak on Wednesday, falling 1.5 basis points to 0.23%. It declined as much as 2 basis points to 0.225% following the BOJ’s announcement.
“We decided to take the step because the entire yield curve was under strong upward pressure, heightening the risk of the 10-year yield exceeding our upper limit,” a BOJ official told Reuters on Wednesday’s announcement.
Yields on longer-dated maturities also pulled back, with the 20-year JGB yield losing 4.5 basis points to 0.77% and the 30-year JGB yield down 6.5 basis points at 1.005%.
Under yield curve control, the BOJ sets its short-term rate target at -0.1% and that for the 10-year JGB yield around 0%.
Its current guidance is to allow the 10-year yield to move flexibly, as long as it is below an implicit 0.25% ceiling set around the target.
Struggling against the tide of rising interest rates globally, the BOJ on Monday took the rare step of offering to buy unlimited amounts of 10-year JGBs at 0.25% twice in a single day.
It also announced a plan to continue buying the note in unlimited volumes at the 0.25% fixed rate from Tuesday to Thursday.
“The BOJ has long reduced bond purchases through stealth tapering but due to strong upward pressures on yields they can no longer be curbed unless it conducts fixed-rate operations,” said Hiroaki Muto, economist at Sumitomo Life Insurance Co.
“It’s aggressively buying JGBs by increasing its purchases and fixed-rate operations.”
($1 = 122.9400 yen)
(Reporting by Leika Kihara; Additional reporting by Kantaro Komiya, Daniel Leussink and Kevin Buckland; Editing by Shri Navaratnam and Sam Holmes)