The Bank of Japan (BoJ) asserted control over the nation’s bond yields, sending borrowing costs lower with its first fixed-rate purchase operation since February after a global debt selloff.
No bids were tendered after the central bank offered to buy benchmark 10-year notes at 0.11 percent, it said yesterday.
Yields dropped to 0.085 percent from as high as 0.105 percent before the operation was announced, while the yen swung to a loss.
The BOJ is acting after German bonds and Treasuries led a global debt selloff on Thursday, threatening its yield-curve control strategy. The hawkish tilt adopted by the European Central Bank and the Bank of England last week has put in focus the policy divergence that Japan has with its peers, with Bank of Japan Governor Haruhiko Kuroda maintaining that the nation requires stimulus to reach growth and inflation targets.
“BOJ’s operations on Friday clearly showed its stance that it will not allow JGB yields to rise extensively,” said Genji Tsukatani, a Tokyo-based fund manager at JPMorgan Asset Management. “The BOJ is not expected to tighten right away as domestic prices are not rising.”
The yen traded down 0.5 percent at ￥113.75 to the dollar at 3:23pm in Tokyo, after earlier strengthening as much as 0.1 percent. The yield for 20-year bonds fell 1.5 basis points to 0.605 percent, while that for 30-year debt slipped 1 basis point to 0.89 percent.
“The ECB and BOE have become more hawkish, giving the impression that they will eventually tighten their monetary policies, and the Fed is already raising interest rates,” SMBC Nikko Securities chief fixed income strategist Hidenori Suezawa said. “In such a scenario, the BOJ will keep its stance to buy JGBs to control the yield curve as it still has a lot of room to buy.”
This is the third time that the BOJ conducted a fixed-rate operation since introducing its yield-curve control policy in September last year. Its first offer in November also drew no bids, while it bought ￥723.9 billion (US$6.37 billion) in February, sending yields lower after they had surged to 0.15 percent on Feb. 3.
The BOJ adopted a strategy to control yields at around 0 percent in September, while maintaining an annual bond purchase target of around ￥80 trillion. Still, market participants at meetings held last month asked the central bank to consider a policy framework under which greater volatility in yields was allowed, while interest rates are maintained at a sufficiently low level.
Kuroda and his board members have come under increasing pressure to discuss how the central bank might unwind its policies to give more guidance to investors. He may have to start discussing an exit by the end of the year as economic growth may surprise on the upside, according to Principal Global Investors, which manages more than US$424 billion.
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