BOJ stays away from bond market even as 10-year yield hits 6-year high

[TOKYO] The Bank of Japan refrained from stepping into the market Friday (Mar 25) morning, even as the 10-year government bond yield rose to a 6-year high and above the level at which the central bank had offered to buy an unlimited amount in February.

The yield on the 10-year Japanese government bond (JGB) rose to 0.240 per cent on Friday, the highest level since January 2016.

The move took it beyond the 0.230 per cent level that prompted the BOJ to offer an unlimited amount of 10-year JGBs at 0.25 per cent on Feb 10.

The BOJ did not make such an offer on Friday morning, though some market players speculate it could do so in the afternoon.

The BOJ's current 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, though it will take into account not just the level but the speed of any rise in yields.

The 10-year JGB yield has been creeping up in tandem with a rise in US long-term interest rates, as investors have priced in the prospect of aggressive rate hikes by the Federal Reserve.

BOJ Governor Haruhiko Kuroda has repeatedly said the central bank would maintain interest rates at the current ultra-low levels, given the fragile economic recovery and as inflation remains well below its 2 per cent target.

Under its yield-curve control policy, the BOJ pledges to cap the 10-year JGB yield around 0 per cent to keep borrowing costs low and stimulate the economy.

In a policy review conducted in March last year, the BOJ clarified that it will allow the 10-year JGB yield to move 25 basis points on either side of zero. That was intended to breathe life back into a market made dormant by the BOJ's huge presence. REUTERS