In the face of market forces, the Bank of Japan is conducting a special operation to curb the rise in yields

In the face of market forces, the Bank of Japan is conducting a special operation to curb the rise in yields

Written by Kevin Buckland

TOKYO (Reuters) – The Bank of Japan said it will buy Japanese government bonds in a special operation on Tuesday, as the benchmark 10-year yield ran into a 0.25% policy ceiling as the central bank battles a relentless rise in global prices.

The Bank of Japan stands alone among developed markets in maintaining the short-term policy rate at negative, as well as holding the long-term zero-yield, citing tepid wage growth, relatively low core inflation for consumers compared to peers, and a fragile economic recovery.

The Bank of Japan will buy 100 billion yen ($692.28 million) of 10- to 25-year debt, and 150 billion yen of 5- to 10-year securities.

The 10-year government bond yield was up 0.5 basis points at 0.25%, as of 0538 GMT, a level not seen since September 16. The central bank holds the yield at +/- 25 basis points around zero under its yield curve policies.

Japan’s bond market is under pressure amid a surge in global yields as major central banks including the US Federal Reserve and the European Central Bank race to raise interest rates to curb hyperinflation.

“The Bank of Japan is trying to calm speculation that it may have to change policy,” said Masayuki Kishikawa, chief macro strategist at Sumitomo Mitsui (NYSE:) Asset Management in Tokyo.

“It is very clear that it has no intention of changing monetary policy for the foreseeable future.”

nervous markets

The Bank of Japan maintained its stance last week, despite the growing divergence in policy that pushed the yen to its lowest levels in 24 years. Japanese authorities intervened in the foreign exchange market for the first time since 1998 to prop up the ailing currency.

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The upward trajectory of interest rates in recent days has been exacerbated by rising UK bond yields after investors gave a harsh assessment of the new government’s fiscal plans.

In a sign of pressure on the market, 10-year notes with nine years to maturity are at 0.3%, according to Tradeweb Markets (NASDAQ:).

Japan’s 10-year government bond futures fell 0.29 points to 147.71, after earlier touching a three-month low of 147.62.

โ€œThe 10-year yield is controlled by the Bank of Japan, but the other maturities are not under control, so we see an skew, kind of strange shape of the yield curve,โ€ said Kitchawa of Sumitomo Mitsui.

Traders said the market was also on alert ahead of the 40-year JGB auction after a very poor sell-off of 20-year bonds on Sept. 15.

However, the yield on 40-year Japanese government bonds jumped 8.5 basis points to 1.635%, the highest level in Refinitiv data going back to 2015.

The yield on the 30-year JGB rose 6 basis points to 1.435% for the first time since September 2015, and the 20-year yield rose 4 basis points to 1.03% for the first time since December 2015.

The five-year yield added two basis points to 0.09%, a level not seen since September 2015.

The two-year yield rose one basis point to a three-month high of -0.050%.

(1 dollar = 144.4500 yen)

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