The Bank of Japan (BOJ) announced an unprecedented third day of unscheduled bond purchases as it fights speculation that it is about to end its super-accommodative monetary policy.
The combination of additional fixed-rate and fixed-amount purchases announced yesterday have boosted this month’s buying to about ￥17 trillion (US$128.26 billion), a monthly record, according to data compiled by Bloomberg.
The BOJ’s avalanche of bond buying follows a surge in yields since the central bank unexpectedly raised its ceiling for the benchmark 10-year note to 0.5 percent at its Dec. 20 meeting.
Photo: Kyodo via Reuters
While policymakers said the move was to improve market functioning, traders have interpreted it as a step toward the end of the yield-curve control policy as they load up on short-interest stocks.
“Honestly, I don’t understand the BOJ’s intention,” Tokai Tokyo Securities Co chief bond strategist Kazuhiko Sano wrote in a research note. “The wider trading band is only fanning speculation of more policy changes and increased bond purchases risk reducing market liquidity even further.”
The BOJ yesterday offered to buy unlimited amounts of two-year bonds at a yield of 0.04 percent, and five-year debt at 0.24 percent, along with a total ￥700 billion of one-to-10 year bonds and ￥300 billion of 10-to-25 year debt.
That is in addition to daily operations to buy unlimited quantities of 10-year securities and futures-linked securities at 0.5 percent.
The BOJ said on Thursday it would provide banks with two-year loans at no interest next week.
Funds from BlueBay Asset Management to Schroders PLC have said they added to short positions on Japanese bonds, with some also buying the yen.
Meanwhile, economists have said that BOJ Governor Haruhiko Kuroda eroded his credibility by making the policy switch without warning.
Japan’s bond market is to reopen on Wednesday after the New Year holiday. The Ministry of Finance said it would auction ￥2.7 trillion of 10-year bonds on Thursday.
“It looks like the BOJ isn’t tolerating higher yields on shorter notes,” Mitsubishi UFJ Morgan Stanley Securities Co bond strategist Keisuke Tsuruta said in Tokyo. “These are probably preemptive measures because foreign funds come back after the New Year holiday and there will be a 10-year note auction.”
The 10-year bond extended gains after the BOJ’s additional debt purchases operation was announced, with its yield falling 4.5 basis points to 0.41 percent. The yen strengthened as much as 0.5 percent against the dollar, even though efforts to cap bond yields are generally negative for the currency.
The BOJ’s struggle to contain rising local yields could have a global consequence as those who have invested in Japan own US$2.4 trillion of foreign debt. Higher local yields could spur Japanese investors to bring home more funds, exacerbating upward pressures on bonds around the world.
“The ripples from the BOJ move continue to impact markets,” Commonwealth Bank of Australia currency strategist Martin Whetton wrote in a research note. “Hedge costs remain punitive. The yen could retrace, which leaves unhedged buyers out of pocket, and the domestic yields of course are attractive.”
The BOJ might surprise markets again by tightening monetary policy as soon as next month, former Japanese vice minister of finance and Aoyama Gakuin University professor Eisuke Sakakibara said last week.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) secured a record 70.2 percent share of the global foundry business in the second quarter, up from 67.6 percent the previous quarter, and continued widening its lead over second-placed Samsung Electronics Co, TrendForce Corp (集邦科技) said on Monday. TSMC posted US$30.24 billion in sales in the April-to-June period, up 18.5 percent from the previous quarter, driven by major smartphone customers entering their ramp-up cycle and robust demand for artificial intelligence chips, laptops and PCs, which boosted wafer shipments and average selling prices, TrendForce said in a report. Samsung’s sales also grew in the second quarter, up
LIMITED IMPACT: Investor confidence was likely sustained by its relatively small exposure to the Chinese market, as only less advanced chips are made in Nanjing Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) saw its stock price close steady yesterday in a sign that the loss of the validated end user (VEU) status for its Nanjing, China, fab should have a mild impact on the world’s biggest contract chipmaker financially and technologically. Media reports about the waiver loss sent TSMC down 1.29 percent during the early trading session yesterday, but the stock soon regained strength and ended at NT$1,160, unchanged from Tuesday. Investors’ confidence in TSMC was likely built on its relatively small exposure to the Chinese market, as Chinese customers contributed about 9 percent to TSMC’s revenue last
LOOPHOLES: The move is to end a break that was aiding foreign producers without any similar benefit for US manufacturers, the US Department of Commerce said US President Donald Trump’s administration would make it harder for Samsung Electronics Co and SK Hynix Inc to ship critical equipment to their chipmaking operations in China, dealing a potential blow to the companies’ production in the world’s largest semiconductor market. The US Department of Commerce in a notice published on Friday said that it was revoking waivers for Samsung and SK Hynix to use US technologies in their Chinese operations. The companies had been operating in China under regulations that allow them to import chipmaking equipment without applying for a new license each time. The move would revise what is known
UNCERTAINTY: A final ruling against the president’s tariffs would upend his trade deals and force the government to content with billions of dollars in refunds The legal fight over US President Donald Trump’s global tariffs is deepening after a federal appeals court ruled the levies were issued illegally under an emergency law, extending the chaos in global trade. A 7-4 decision by a panel of judges on Friday was a major setback for Trump, even as it gives both sides something to boast about. The majority upheld a May ruling by the Court of International Trade that the tariffs were illegal. However, the judges left the levies intact while the case proceeds, as Trump had requested, and suggested that any injunction could potentially be narrowed to apply
RSS