by Junko Fujita
TOKYO (Reuters) – The Bank of Japan (BoJ) announced on Tuesday that it was extending a plan to buy unlimited 10-year government bonds (JBG) by two days, knocking their yield to its lowest level since more than a week.
The central bank’s offer last Wednesday to buy an unlimited amount of government bonds over the next four sessions did not allow the ten-year JGB yield to fall below 0.245%.
But the announcement of an extension of the operation until Thursday reduced this yield to 0.230%, its lowest level since April 15.
The BoJ has already resorted to this exceptional one-off measure in February and March in order to prevent the yield on the ten from exceeding 0.25%, the implicit ceiling that the BoJ sets around its target of 0%, even though that other central banks are raising rates to counter rising prices.
But contrary to its development in other major economies, inflation in Japan remains subdued.
The BoJ meets its monetary policy committee on Wednesday and Thursday.
Masaaki Kanno, chief economist at Sony Financial Group and a former BoJ official, said it was “pretty rare” for the institution to do such a thing on the eve of the first day of its meeting.
“That means it really wants to send a strong message that it will prevent the benchmark bond yield from overshooting its target,” he said.
For Masaaki Kanno, the depreciation of the yen should continue as the political divergence between the BoJ and the US Federal Reserve should increase.
Makoto Suzuki, senior strategist at Okasan Securities, points out that the BoJ’s decision comes at a time when the economic environment is likely to deteriorate, due among other things to the anti-COVID-19 containment imposed in Shanghai, the economic capital of China.
(Junko Fujita report; French version Laetitia Volga, edited by Marc Angrand)