BOJ offers unlimited buying of 10-year bonds

THE Bank of Japan offered on Wednesday (Apr 20) to buy an unlimited amount of 10-year Japanese government bonds (JGB) at 0.25 per cent, 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 per cent in early trade, the upper limit of its target of around 0 per cent.

The rise in yields comes as the yen weakens sharply to 2-decade lows against the US dollar amid a relentless widening of Japanese and US 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 per cent in Tokyo trading on Wednesday, while the equivalent JGB yield held at 0.25 per cent as at 5 am GMT.

"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 per cent target as long as it stays below the 0.25 per cent upper limit. It offered to buy unlimited amounts of 10-year bonds at 0.25 per cent in February and March.

With the Japanese economy still weak and inflation modest, the BOJ has stressed its resolve to keep policy ultra-loose even as the US 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 130 per dollar on Wednesday, a level not seen for 2 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. REUTERS