BOJ Defends Yield-Curve Target With Another Round of Bond Buying

 The Bank of Japan announced another round of unscheduled bond-purchase operations as it seeks to limit selling pressure on the nation’s debt.

The BOJ offered to buy unlimited amounts of two-year notes at a yield of 0.030% and five-year debt at 0.240%. It also offered to buy a total ¥300 billion yen ($2.24 billion) of one-to-10 year notes. The move was similar to Wednesday’s unplanned operations and was in addition to a daily offer to purchase unlimited quantities of 10-year bonds and futures-linked securities at 0.5%.

The additional operations signify the conundrum facing Japanese policy makers. They doubled the ceiling for 10-year yields to 0.5% this month to help improve market functioning, but the decision sparked a selloff in debt, requiring even more BOJ purchases and threatening to reduce liquidity further.

“When the BOJ tries to fix one thing, the other thing falters,” said Keisuke Tsuruta, a bond strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Market participants have been feeling that yield curve control is approaching its limit but the central bank doesn’t admit it.”

Bonds still dropped even after the central bank announced the operations. Yield on the 20-year debt added three basis points to 1.30%.

BOJ governor Haruhiko Kuroda has said the decision to increase the 10-year benchmark yield ceiling was just to make the curve control program more sustainable.

Japan’s key inflation gauge is climbing at the fastest pace in four decades, putting further pressure on the central bank. Traders are adding to bets the BOJ is moving toward ending its ultra-loose monetary policy, with money managers including BlueBay Asset Management predicting the central bank will make further tweaks in the months ahead.

The BOJ conducts two kinds of bond-buying operations, one with a fixed yield and the other for a fixed amount. In the former it buys an unlimited quantity of debt at a predetermined yield. In the latter, it purchases a fixed amount of bonds at the prevailing market yield.

https://ca.finance.yahoo.com/news/boj-announces-more-unscheduled-bond-012640654.html