Japanese government bond yields jumped by the most in almost two years today before the Bank of Japan (BoJ) was forced to intervene after reports that the central bank is considering tweaking its massive monetary stimulus programme.
The spike higher in Japanese bond yields prompted the BoJ to intervene directly in the bond market, agreeing to buy unlimited amount of bonds at 0.11 per cent. While the offer was not taken up, the signal that the yield cap remains active was enough to push yields back down.
The yield on a 10-year Japanese bond rose as high as 0.092 per cent in early-morning trading, according to Tradeweb data, before the central bank’s move pushed it back down to 0.08 per cent at the time of writing. Bond yields move inversely to prices.
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The Japanese yen also rose against the US dollar before retreating. A dollar had bought as much as 113 yen last week, its highest point since January, but the yen weakened to lows of 110.75 to the dollar this morning, before the BoJ action prompted a recovery.
The market moves were responding to possible changes in BoJ policy which could include adjusting the current cap on bond yields, which targets zero on the 10-year Japanese government bond and negative short-term rates, as well adjusting its bond and equity purchases, Reuters reported.
By loosening the cap on long-term rates and allowing them to drift higher the changes could make Japan’s ultra-loose monetary policy less damaging to the local banking sector. Ultra-low or even negative rates limit the amount which lenders can charge on their loans.
However, expectations for any major announcement at the BoJ’s next week’s scheduled monetary policy meeting are low given inflation remains substantially below the two per cent target. The Bank will also likely want to avoid any policy shifts that cause further appreciation in the yen which could push inflation further out of reach and hurt the competitiveness of the export sector.
Speaking at the G20 meeting of finance ministers and central bank governors which took place in Buenos Aires this weekend, BoJ governor Haruhiko Kuroda, denied any discussion of a policy shift.
The report on possible tighter monetary policy in Japan comes as other major central banks are scaling back crisis-era accomodation with the Bank of England widely expected to hike rates later next week and the US Federal Reserve and European Central Bank (ECB) also reining in stimulus.
Read more: European Central Bank announces end of quantitative easing
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