BoJ boosts bond buying to cap yields pressured by global swings

THE Bank of Japan (BoJ) boosted bond purchases at a regular operation last Friday and said it will step up buying in the coming quarter to cap upward pressure on yields.

The BoJ bought ¥550 billion (RM12.27 billion) of five- to 10-year bonds, higher than the ¥500 billion planned, and conducted a daily offer to acquire an unlimited amount of 10-year bonds at 0.25%. It also announced an increase in purchases of bonds with maturities of at least five years for the coming three months.

Like some of its counterparts in Asia, the BoJ is stepping up efforts to counter market volatility as rising interest rates fuel fears of a global downturn. In the case of Japan, some of the pressure on bonds is emanating from bets that the central bank may eventually ditch its ultra-loose stance to narrow the yield gap with its major peers.

“The changes reflect the BoJ’s intention to contain the rise in super-long yields that are dragged higher by the increase in overseas yields, as part of its efforts to correct distortions in the yield curve,” said Mari Iwashita, chief market economist at Daiwa Securities Co Ltd in Tokyo.

Some analysts had predicted the increase in buying for the coming quarter after the BoJ recently ramped up purchases at both regular and unscheduled operations.

The move comes after the 10-year government bond yield climbed to the 0.25% upper limit of the BoJ’s accepted range last week. The yield was at 0.24% last Friday.

In last Friday’s regular operation, the central bank kept purchase amounts unchanged for three- to five-year notes, 10- to 25-year debt and securities maturing over 25 years.

The authorities have bought about ¥19.8 trillion of bonds through scheduled and unscheduled operations this quarter, compared to around ¥21 trillion in the preceding three months. These amounts exclude unlimited fixed-rate buying operations which the BoJ conducts daily.

The central bank spent more than ¥16 trillion on government bond purchases in June alone — a record — to defend its policy. — Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition.