BoJ fights off spike in JGB yields

TOKYO: The Bank of Japan (BoJ) fired a warning shot to markets by offering to buy unlimited bonds for the first time under a revamped policy framework, as domestic debt yields surged in the wake of Donald Trump’s upset US election victory.

BoJ governor Haruhiko Kuroda (pic) said the central bank will not stand idly by as Japanese government bond (JGB) yields jumped in sympathy with moves in US Treasuries, taking the challenge to markets as policy makers tried to keep borrowing costs low to spur stubbornly low inflation.

The BoJ offered to buy an unlimited amount of bonds at -0.04% in the five-year JGB notes and -0.09% in the two-year paper, employing a method the bank unveiled in September to achieve its new policy to control the entire yield curve, rather than just short-term interest rates.

The market’s response was quick, with the five-year JGB yield falling back to -0.095% from -0.065%. The two-year yield fell to -0.150%, down 4.0 basis points on the day.

The BoJ’s bond-buy offer attracted no bids as market players can sell them at a lower yield, or a higher price, in the market.

“They offered to buy at yields above the market’s levels. So this was aimed more at containing rise in yields rather than pushing them down,” said Naoya Oshikubo, yen rates strategist at Barclays. Ten-year JGB futures rose as much as 0.40 point following the BoJ’s operation, the biggest gain since the BoJ started the “yield curve control” policy. The BoJ’s move followed rising expectations of reflationary policies under a Trump administration that sank Treasuries and sent JGB yields above the rough targets the BoJ set in September. – Reuters