Tokyo, Reuters: The Bank of Japan made a new offer on Wednesday to buy an unlimited amount of 10-year bonds for the next four days in order to keep the rate at its target.
There was no change in the yield on the 10-year JGB on Wednesday, even though the central bank had said it would buy an unlimited amount of the bonds at that rate. The move comes as the yield on the 10-year JGB stayed above the upper end of its target range of about 0% for most of the day.
Following recent changes in long-term bond yields, the BOJ said it would buy unlimited fixed-rate bonds in order to keep the 10-year yield around 0%.
It comes as the yen drops sharply to two-decade lows against the US dollar and Japanese and US bond yield spreads keep widening. This makes markets question the central bank about its commitment to its super-easy yield-curve-control policy.
There was a big rise in the yield on the benchmark 10-year Treasury note in Tokyo on Wednesday. It was at 2.99%, the highest since late 2018.
There is no other choice for the Bank of Japan but to keep buying JGBs at the rate it is now, says Takafumi Yamawaki, head of Japan fixed income research at JPMorgan (NYSE: JPM).
If the central bank lets 10-year bond yields keep going up, its message to the market would become a little less clear.
The BOJ says that it will let the 10-year yield move freely around its 0 percent target as long as it doesn’t go above the 0.25 percent upper cap.
The BOJ took all of the bids it got for 225.1 billion yen ($1.75 billion) on Wednesday.
Bank: In February, the bank announced that it would purchase an unlimited amount of 10-year bonds at 0.25 percent.In March, the bank made four days of offers.
In a statement, the BOJ said that even though the U.S. Federal Reserve is likely to raise interest rates quickly to stop rising prices, the BOJ will keep its policy ultra-loose.
He said on Monday that the yen’s recent moves had been “quite sharp.” This was his strongest warning yet about the dangers of the currency’s depreciation, and it could hurt businesses’ business plans.
Finance Minister Shunichi Suzuki was more specific on Tuesday. He said that the weakening yen is causing more harm to the economy than good right now.
The yen fell to near 130 to the dollar on Wednesday, a level not seen in two decades. This raises the risk of the central bank buying a lot of yen in the open market with its foreign-currency reserves.
The last time Japan did something to help its currency was in 1998, when the Asian financial crisis led to a yen sell-off and a lot of money leaving the country.
One dollar is worth 128.6500 yen.
