By Leika Kihara and Junko Fujita
TOKYO (Reuters) – Japan’s central bank on Thursday offered to buy unlimited amounts of 10-year government bonds for the fourth straight day as part of its aggressive efforts to defend its yield curve against the global tide of higher interest rates.
The announcement was expected and in line with the BOJ’s earlier pledge to continue with the offer until Thursday, the final day of the first quarter.
Investors are focusing on whether the BOJ could increase the frequency and volume of bond purchases under a second-quarter market operation schedule, slated for release later on Thursday.
After falling to as low as 0.210% on Wednesday due to the Bank of Japan’s massive intervention, the yield on the benchmark 10-year Japanese government bond (JGB) yield crept up to 0.225% on Thursday.
The level was still below the 0.25% implicit cap the BOJ sets around its 0% target.
“The BOJ may increase bond buying somewhat in the second quarter, so markets make take a breather after testing the 0.25% cap,” said Chotaro Morita, head of Japan rates strategy at SMBC Nikko Securities.
The super dovish BOJ is struggling against the tide of rising global interest rates as central banks elsewhere race to beat accelerating inflation, with the international spike in yields dragging Japan’s rates higher.
Complicating that challenge for Tokyo policymakers are the rising costs of imports brought by a weakening currency and global fallout of the Ukraine war.
Japan’s top currency diplomat on Tuesday escalated his warning against sharp yen falls, saying Tokyo and Washington were closely communicating on currency issues.
But policymakers have yet to caution against “one-sided” moves or stress their resolve to take “decisive action,” which are phrases markets look out for as a sign currency intervention may be imminent.
“Currency stability is important and sharp exchange-rate moves are undesirable,” Chief Cabinet Secretary Hirokazu Matsuno told reporters on Wednesday, repeating the government’s recent official line on the weak yen.
The yen’s fall has inflated already rising raw material costs blamed on the Ukraine crisis, adding pain to households and clouding the outlook for Japan’s fragile economic recovery.
Factory output rose 0.1% in February from the previous month, ata showed on Thursday, posting its first rise in three months but smaller than forecast.
(Reporting by Leika Kihara and Junko Fujita, Additional reporting by Kantaro Komiya and Daniel Leussink; Editing by Shri Navaratnam)
