BOJ Intervenes to Cap Japanese Yields Just as Havens Find Favor - EconomyDiary

BOJ Intervenes to Cap Japanese Yields Just as Havens Find Favor - EconomyDiary

(Bloomberg) - Japanese bonds got a double boost Monday as traders returned from a long weekend to find strong demand for haven assets, just as the central bank showed its determination to enforce yield-curve control.

The Bank of Japan offered to buy an unlimited amount of 10-year bonds at a fixed rate of 0.25% in a bid to cap the recent rise in yields. There was no take-up from investors, given the benchmark yield slipped well below that rate in the secondary market to as low as 0.2%.

The plan was announced on Thursday and was the first of its type in more than three years. That news came shortly before U.S. inflation data sparked a renewed selloff in global bonds, only for them to recover on Friday as central banks pushed back on rate-hike speculation and tension over Ukraine increased.

The shifts over recent days meant the need for the BOJ to conduct this kind of operation had eased. With U.S. yields back near where they were before Japan’s three-day weekend, there was no expectation of any take up from investors, said Katsutoshi Inadome, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.


“The JGB market will likely see relief buying as the BOJ firmly showed its stance to draw a line on the upper limit of 10-year yield at 0.25%,” he wrote in a note before the operation.

Japan’s central bank remains an outlier, maintaining an ultra-easy policy while its peers start to wind back stimulus. With the fixed-rate operation, the BOJ is setting 0.25% as a clearer line in the sand for traders and doubling down on its commitment to continue with its stimulus program for now.

The lack of takers on Monday came as no surprise as the rate offered no incentive for bondholders to sell. As in past instances, the BOJ’s first fixed-rate operation this time around was more a precautionary move. The offer included the current 10-year benchmark bond and two previous benchmark issues.

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