The Bank of Japan increased government bond purchases in regular market operations on Wednesday for the first since adopting its yield curve control in September, signalling its readiness to intervene against unwelcome rises in long-term interest rates. Superlong Japanese government bond yields slid and the yen fell against the dollar on the surprise move, which underscored the central bank's determination to defend its yield cap - even if that meant topping up bond purchases.
"The move was aimed at steering the yield curve towards an appropriate shape...taking into account recent sharp rises in super-long bond yields and concern over the possibility of further volatility," a BoJ official told Reuters on Wednesday. The BoJ offered to buy 120 billion yen ($1 billion) of JGBs with more than 25 years left to maturity. It also offered to buy 200 billion yen of JGBs with between 10 and 25 years left to maturity.
Under its current monetary policy framework of "yield curve control" unveiled in September, the BoJ has pledged to guide the 10-year JGB yield to around zero percent. It was the first time the BoJ increased bond buying in market operations under the new framework. The last time it responded to rising yields was in November, when it fired a warning shot to markets by offering to buy unlimited bonds. The step was likely aimed at soothing market jitters ahead of a 20-year government bond auction on Thursday, market players said.