BOJ steps in to curb rising yields, to buy unlimited 10-year JGBs

[TOKYO] The Bank of Japan said on Thursday (Feb 10) it would buy an unlimited amount of 10-year Japanese government bonds (JGB) at 0.25 per cent, underscoring its resolve to prevent rising global yields from pushing up domestic borrowing costs too much.

The offer will be made on Monday, the central bank said in a statement on its website.

The announcement came after the benchmark 10-year JGB yield rose to 0.230 per cent on Thursday, the highest since 2016 and close to the implicit 0.25 per cent cap the BOJ sets around its target of 0 per cent.

"The BOJ sent a strong message to markets of its resolve to curb any rise in yield above 0.25 per cent," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"Much depends on how the US bond market moves. But if the 10-year JGB yield remains under strong upward pressure, the BOJ may end up carrying out more operations like this," he said.

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, whose recovery from a pandemic-induced slump has lagged many of its peers.

But stubbornly hot inflation in the West and more hawkishness from other major central banks had spurred some bets that the BOJ would need to taper its ultra-loose monetary policy soon, pushing JGB yields to multi-year highs.

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 size of zero. It was intended to breathe life back into a market made dormant by the BOJ's huge presence.

Markets have been focusing on how the BOJ could respond to creeping JGB yields. The offer to buy unlimited amount of JGBs at 0.25 per cent would be the most powerful weapon the central bank has to control the 10-year yield around its target. REUTERS