BOJ notches up defense of yield cap with bigger, unscheduled bond buying

Author of the article: TOKYO — Japan’s central bank on Wednesday ramped up efforts to defend its key yield cap, offering to buy more government bonds across the curve including through unscheduled emergency market operations. The move underscores the Bank of Japan’s resolve to keep monetary policy ultra-loose, even at the cost of fueling further…
BOJ notches up defense of yield cap with bigger, unscheduled bond buying

Author of the article:

TOKYO — Japan’s central bank on Wednesday ramped up efforts to defend its key yield cap, offering to buy more government bonds across the curve including through unscheduled emergency market operations.

The move underscores the Bank of Japan’s resolve to keep monetary policy ultra-loose, even at the cost of fueling further yen falls, which could push up import costs and hurt the economy.

In a statement, the BOJ said it will step up buying 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 said it would also offer 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 the 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 10-year JGB yield declined 2 basis points to 0.225% following the 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.

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. ($1 = 122.9400 yen) (Reporting by Leika Kihara; Additional reporting by Kantaro Komiya Editing by Shri Navaratnam and Sam Holmes)

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