By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) -Japan’s central bank stepped up efforts to stop a key bond yield rising across a red line on Wednesday, offering to buy more government debt, including through ad-hoc purchases, to keep interest rates low against a pull higher from global yields.
The Bank of Japan’s (BOJ) intervention comes as it seeks to keep monetary policy ultra-loose, even at the cost of fuelling further yen falls, which could push up import costs and hurt the economy.
BOJ Governor Haruhiko Kuroda appeared unfazed over the yen’s fall, describing the move as driven partly by Japanese firms’ dollar buying to pay energy bills.
“I don’t think the BOJ’s market operation is having a direct effect on currency moves,” Kuroda told reporters after meeting with Prime Minister Fumio Kishida on Wednesday. “We didn’t discuss anything in particular on currency moves.”
The news of the meeting pushed the yen up by more than 1% to 121.32 per dollar by adding to speculation about the level of official discomfort with a weak yen.
The super dovish BOJ is struggling against the tide of rising global interest rates as central banks elsewhere race to beat accelerating inflation, with the spike in yields internationally dragging Japan’s yields higher.
Complicating that challenge for Tokyo policymakers are the rising costs of imports from a weakening currency and global fallout of the Ukraine war.
The BOJ increased purchases of Japanese government bonds (JGB) with maturities of three to 10 years by a combined 450 billion yen ($3.66 billion) in Wednesday’s market operations. The central bank also offered to buy 250 billion yen in super-long JGBs in unscheduled, emergency operations.
“The BOJ will increase the number of auction dates and the amount of outright JGB purchases as needed, taking account of market conditions,” the BOJ said in a statement.
The move bolsters the BOJ’s intervention in the bond market announced on Monday, in which it pledged to buy unlimited amounts of 10-year government bonds at 0.25% until Thursday.
“The BOJ is trying to strengthen its message to the market, that it’s strongly committed to keeping financial conditions in Japan very accommodative and won’t accept those kinds of higher long-term bond yields,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.
“We need to remember the official BOJ target is 0% for the 10-year JGB, not 25 basis points.”
FALLING IN LINE
The yield on benchmark 10-year Japanese government bonds on Wednesday retreated from a more than six-year peak hit earlier in the week, falling 1.5 basis points to 0.23%. It had declined as much as 2 basis points to 0.225% following the BOJ’s announcement.
That pullback in U.S. Treasury yields overnight also helped their Japanese counterparts lower.[US/]
“We decided to take the step because the entire yield curve was under strong upward pressure, heightening the risk of the 10-year yield exceeding our upper limit,” a BOJ official told Reuters on Wednesday’s announcement.
The BOJ’s emergency offer to buy super-long bonds also drove down yields on longer-dated maturities. The 20-year JGB yield lost 7.5 basis points to 0.74% and the 30-year JGB yield was down 9.5 basis points at 0.975%.
Under yield curve control, the BOJ sets its short-term rate target at -0.1% and that for the 10-year JGB yield around 0%.
Its current guidance is to allow the 10-year yield to move flexibly, as long as it is below an implicit 0.25% ceiling set around the target.
Markets will be on the lookout for the BOJ’s announcement of its bond-buying schedule for the April-June quarter, to be released Thursday afternoon, for any signs of additional purchases.
($1 = 122.9400 yen)
(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kantaro Komiya, Daniel Leussink and Kevin Buckland; Editing by Shri Navaratnam and Sam Holmes)