by Leika Kihara
TOKYO, March 28 (Reuters) – The Bank of Japan (BoJ) on Monday announced plans to buy an unlimited amount of government bonds in a bid to rein in rising yields, defending its yield target at all costs. bond market and its ultra-accommodative monetary policy.
The yield on ten-year Japanese government bonds (JBG) hit a six-year high of 0.25% on Monday, although the central bank intervened in the market by offering to buy an unlimited amount of Japanese government bonds. 10-year government bonds at a yield of 0.25% to defend the implicit yield ceiling that the BoJ sets around its target of 0%.
As this operation failed to lower bond yields, the BoJ offered to buy an unlimited amount of JGB with maturities of more than five years and up to ten years.
Both proposals demonstrate the central bank’s determination to keep rates very low even as other institutions, like the US Federal Reserve, have begun to tighten their monetary policy.
The prospect of even greater divergence between BoJ and Fed policies sent the yen down to a low since August 2015 against the dollar, at 123.81 to the dollar.
The BoJ agreed last year to let the 10-year bond drift 0.25% in either direction from its target, down from 0.2% previously.
“The BoJ’s supply power is clearly waning,” said Takahide Kiuchi, a former central banker and now an economist at Nomura.
“Markets could test the BoJ’s resolve to defend the 0.25% cap, which could prompt the central bank to change its approach and let the ten-year yield rise further.”
Haruhiko Kuroda, the institution’s governor, has repeatedly said that the cost of credit will remain low given the fragility of the economic recovery and the inflation rate below the 2% target.
The BoJ’s announcements should discourage market participants from pushing the 10-year yield above 0.25%, analysts say.
But some players doubt how long the BoJ can continue to defend its implied yield ceiling, as its offers to buy unlimited sovereign bonds risk further weakening the yen and inflating already sky-high import costs. .
“Making unlimited bond buy offers too frequently can cast doubt on the feasibility of yield curve control,” said Shotaro Kugo, an economist at Daiwa Institute of Research.
The last unlimited buy trade dates back to February 10, when the ten-year had reached 0.230%. (Reportage Leika Kihara; with Kantaro Komiya and Takahiko Wada, French version Laetitia Volga, edited by Jean-Michel Bélot)