Bank of Japan Purchases $12.7bn in Bonds Amid Decade-High Yields

188

Japan’s central bank took an unscheduled step on Wednesday, purchasing government debt as yields on benchmark bonds surged to their highest level in a decade. Concurrently, the ongoing global market sell-off propelled US Treasury yields to 16-year peaks.

The Bank of Japan (BoJ) indicated its intention to buy ¥675 billion ($4.52 billion) worth of Japanese government bonds with maturities ranging from five to 10 years. This action formed part of the BoJ’s total purchase of ¥1.9 trillion ($12.7 billion) of JGBs across various maturities on Wednesday. Traders noted that the unscheduled portion of the offer far surpassed market expectations.

While the BoJ sought to maintain its yield control on the 10-year JGB and prevent a decline in the yen, the Japanese currency experienced a brief dip below ¥150 to the dollar on Tuesday, marking its lowest level in nearly a year. The yen weakened further to ¥149.29 on Wednesday morning.

Despite the central bank’s efforts, the yield on the 10-year JGB inched up to 0.783 percent, with market participants increasingly speculating about a potential exit from the negative interest rate policy established in 2016, making Japan the sole remaining country to uphold negative interest rates. Yields on both five-year and 20-year JGBs also ascended to multiyear highs, indicating the growing challenge for the BoJ to counter the prevailing upward trend in yields.

Although the yen rebounded to ¥147.3 following its drop below ¥150, analysts and dealers in Tokyo dismissed the possibility of direct currency intervention by Japanese authorities.

Finance Minister Shunichi Suzuki declined to comment on any exchange rate market intervention, affirming that necessary measures would be taken to address excessive volatility without ruling out any options.

Amidst the surge in Japanese government bond yields, US Treasury sell-offs persisted, leading to fresh 16-year highs in yields. The 10-year US note yield rose by 0.06 percentage points to a peak of 4.85 percent before paring gains to 4.84 percent, while the 30-year US Treasury yield also hit a 16-year high, climbing 0.05 percentage points to 4.97 percent.

Robust economic data in the US fueled expectations of the Federal Reserve maintaining higher interest rates for an extended period. The upheaval in bond markets dampened sentiment in Asian equities, with Japan’s Topix declining by 1.9 percent, Hong Kong’s Hang Seng index falling 1 percent, and South Korea’s Kospi shedding 2.2 percent.