BOJ conducts emergency bond buying as yields push to fresh 9-year peak

TOKYO: The benchmark 10-year Japanese government bond yield hit a fresh nine-year peak on Thursday before pulling back after the Bank of Japan again intervened to cool the speed of the rise.

The central bank offered to buy 300 billion yen ($2.09 billion) of bonds with 5-10 years left to maturity and 100 billion yen of paper maturing in 3-5 years at 0400 GMT, after the 10-year yield rose to 0.655% for the first time since April 2014.

The BOJ had also conducted an unscheduled 300 billion yen purchase of bonds with 5-10 years to maturity on Monday, when the yield climbed to 0.605% for the first time since June of 2014.

The benchmark yield was last 1 basis point (bp) higher at 0.635%.

Investors and the BOJ have played a cat-and-mouse game all week, feeling out the appropriate speed for the 10-year yield’s ascent after the central bank took the unusual step on Friday of leaving the official ceiling at 0.5% under yield curve control (YCC), but shifting the yield for its regular purchase operations to 1% – a de-facto doubling of the cap.

“The BOJ of course made the YCC framework more flexible, but it is trying to keep moves gradual given the large global uncertainties, particularly for the US economy and interest rates,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management.

“If market moves continue to be too fast, the BOJ will continue to intervene.”

Japan’s 10-year bond yield falls ahead of auction

Investors and analysts had expected the BOJ might increase the purchase amounts at its fixed-rate buying operations on Wednesday, and took the decision to leave them unchanged as a signal of additional upside for yields.

Other JGB tenors, whose yields had renewed multi-month highs earlier on Thursday, eased from those levels. The 30-year yield, which had risen as high as 1.57%, was last at 1.56%, just 0.5 bp higher than Wednesday’s close.

The 20-year yield had risen to 1.305% but was last at 1.295%, a 1.5 bps increase from the previous session.

The five-year yield rose 1.5 basis points to 0.2%, after earlier pushing to 0.21%.

The two-year yield, which is more firmly anchored by the BOJ’s negative short-term interest rate policy, remained 0.5 bp higher at 0.015%.