By Junko Fujita
TOKYO (Reuters) – The Bank of Japan offered on Wednesday to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at 0.25%, in its third move since February to defend its yield target.
The yield on the 10-year JGB rose to as high as 0.25% in early trade, the upper limit of its target of around zero percent, and remained at that level throughout the day.
The rise in yields comes as the yen weakens sharply to two-decade lows against the U.S. dollar amid a relentless widening of Japanese and U.S. yield spreads, prompting markets to test the central bank’s commitment to its super-easy yield-curve-control policy..
The benchmark 10-year Treasury yield climbed to the highest since late 2018 at 2.981% in Tokyo trading on Wednesday.
“The Bank of Japan has no other choice than to keep offering unlimited purchases of JGBs,” said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan Securities.
“If the central bank allows 10-year bond yields to keep going up, its message to the market would become unclear.”
The BOJ’s guidance is that it will allow the 10-year yield to move flexibly around its 0% target as long as it stays below the 0.25% upper limit.
It accepted all of the 225.1 billion yen ($1.75 billion) in bids it received in Wednesday’s operation.
The central bank also offered to buy unlimited amounts of 10-year bonds at 0.25% in February and March.
Yields on most other JGB tenors were also higher, with the five-year up half a basis point at 0.03%, 20-year adding 2.5 basis points to 0.775% and 30-year rising 1.5 basis points to 0.98%.
With the Japanese economy still weak and inflation modest, the BOJ has stressed its resolve to keep policy ultra-loose even as the U.S. Federal Reserve looks set to raise rates aggressively to stem soaring prices.
BOJ Governor Haruhiko Kuroda said on Monday the yen’s recent moves had been “quite sharp” and could hurt companies’ business plans, offering his strongest warning yet of the risks stemming from the currency’s depreciation.
Minister of Finance Shunichi Suzuki was more categorical on Tuesday, warning that the damage to the economy from a weakening yen at present is greater than the benefits.
The yen sank to near 130 per dollar on Wednesday – a level not seen for two decades – raising the risk of direct intervention, where the central bank would buy up large amounts of yen in the open market with its foreign-currency reserves.
The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflows from the region.
($1 = 128.6500 yen)
(Reporting by Junko Fujita; Additional reporting by Kevin Buckland; Editing by Jacqueline Wong, Bradley Perrett and Kim Coghill)
