Japan's 5-year bond yield falls after BOJ announces loan offer

Published Fri, Feb 10, 2023 · 03:52 PM

The Bank of Japan (above) says it will extend five-year loans against collateral to financial institutions for the third time since January. Details will be announced on Tuesday. PHOTO: BLOOMBERG

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THE yield on five-year Japanese government bonds (JGBs) fell on Friday (Feb 10), after the Bank of Japan (BOJ) said it would provide loans with the same maturity to banks. The move is intended to contain elevated yields.

The five-year yield fell 0.5 basis points (bps) to 0.195 per cent.

The BOJ said it would extend five-year loans against collateral to financial institutions for the third time since January. Details of the loans will be announced on Tuesday.

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

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

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

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“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.

The two-year JGB yield fell 0.5 bps to minus 0.045 per cent, while the 10-year JGB yield was flat at 0.49 per cent.

BOJ deploys funds-supply tool again as yields creep up

The BOJ’s bond buying in January, at 23.69 trillion yen (S$238.9 billion), was the biggest amount on record and exceeded the previous high of 16.2 trillion yen marked in June 2022.

BOJ’s record bond buying highlights challenge for yield control

Japanese bond yields have crept up on market expectations that the Bank of Japan (above) will phase out its yield-control policy and start raising interest rates under a new governor in April, when incumbent Haruhiko Kuroda steps down.

S&P warns rate hike could hit Japan’s sovereign debt rating

The panel wants interest rates to rise more in line with economic fundamentals, and the BOJ to normalise Japan’s bond market function.

BOJ should make 2% inflation target a long-term goal, panel says

Many of the central bank's board members agree on the need to retain ultra-loose monetary policy to support the economy and help companies raise wages.

Bank of Japan policymakers divided on wage, inflation outlook, Jan meeting summary shows

“Our hope is that wages start to rise and that could make the 2 per cent inflation target to be met in a stable and sustainable manner,” Kuroda told a panel discussion on Friday (Jan 20) in Davos.

Kuroda signals no policy shift after inflation hits 41-year high

The BOJ kept its main policy settings unchanged Wednesday, leaving its negative interest rate at -0.1 per cent.

BOJ jolts financial markets but risk of a bigger shock remains

The BOJ has struggled to defend a 0.5 per cent cap on the 10-year bond yield set under YCC, as investors have sold off bonds in anticipation of a tweak to its ultra-loose monetary policy.

BOJ crafts new weapon to defend yield control policy

Yields on super-long notes tracked US Treasury yields to rise, with the 20-year JGB yield increasing by 1.5 bps to 1.325 per cent, and the 30-year JGB yield climbing 2 bps to 1.55 per cent.

The 40-year JGB yield rose 2 bps to 1.79 per cent.

Benchmark 10-year JGB futures fell 17 yen to 146.52, with a trading volume of 8,442 lots. REUTERS

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Japan's 5-year bond yield falls after BOJ announces loan offer

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