BOJ Offers to Buy JGBs Unlimitedly to Counter Surging Yield

July 23, 2018

Tokyo- The benchmark 10-year Japanese government bond yield jumped on Monday morning, prompting the Bank of Japan to offer to buy JGBs unlimitedly at a fixed yield from the market to cap the rate spike.

The yield of the newest 351st issue of 10-year JGBs with a 0.1 pct coupon rose to as high as 0.090 pct in early interdealer trading, the highest level in about five and a half months, after Jiji Press reported on Friday that the BOJ is considering making its long-term JGB yield target flexible.

Later, the central bank proposed buying JGBs unlimitedly at a fixed yield of 0.110 pct in a money market operation. As a result, the key 10-year yield fell to as low as 0.065 pct, still higher than 0.030 pct late Friday, before rising back to 0.080 pct in Monday afternoon trading.

The key yield "is expected to rise close to the BOJ-set target of 0.110 pct for unlimited purchases several times toward the bank's next monetary policy meeting" on July 30-31, an official of a bank-affiliated securities firm said.

Meanwhile, the dollar fell below 111 yen in Tokyo trading on Monday, following U.S. President Donald Trump's Twitter post late last week showing his concern over the strength of the U.S. unit.

"Dollar selling versus the yen accelerated as the gap between U.S. and Japanese long-term interest rates shrank after the spike of the benchmark 10-year JGB yield," an official of a major bank said.

The bellwether 225-issue Nikkei average on the Tokyo Stock Exchange plunged some 350 points on Monday afternoon, with investor sentiment dampened by the yen's appreciation.

In particular, export-oriented names, including automakers and electronics parts producers, came under heavy selling, market sources said. Jiji Press