Japan’s 10-year bond yield hits BOJ policy limit on new governor report

JAPAN’S 10-year government bond yield hit the top end of the Bank of Japan’s (BOJ) policy band, after a report saying that an economist was set to be the central bank’s next governor was released.

The 10-year Japanese Government Bond yield rose 1 basis point (bp) to 0.5 per cent, rising to the upper end of the BOJ’s trading band for the first time since Jan 18.

The Japanese government has decided to nominate academic Kazuo Ueda as the next governor of the BOJ. It also nominated Ryozo Himino, former head of the country’s Financial Services Agency, and Shinichi Uchida, a BOJ executive, as deputy governors.

The news was first reported by Nikkei.

“This is a surprise move,” said Takayuki Miyajima, senior economist at Sony Financial Group, adding that it was likely the new team would “redesign the BOJ’s monetary policy” and “not maintain the current policy”.

The five-year yield rose 0.5 bp to 0.205 per cent, rebounding from an earlier fall to 0.19 per cent, after the BOJ announced an extension of loans against collateral.

Earlier in the day, the central bank said it would extend five-year loans against collateral to financial institutions. The move is intended to contain elevated yields.

The BOJ last month amended the rules for the funds-supply operation, so it can pump funds over an extended period of up to 10 years to financial institutions against collateral.

But market participants say the measure’s effect will be limited, and may not be sustainable.

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“I am not sure how many more times the BOJ can conduct such operations,” said Kazuhiko Sano, a strategist at Tokai Tokyo Securities.

“Because, in part, it is difficult for financial institutions to secure collateral as they need collateral for BOJ’s other operations, such as bond lending.”

The BOJ last conducted such an operation on Jan 31, after the five-year yield hit 0.2 per cent. REUTERS