BOJ Ramps Up Battle To Defend Yield Cap In 2nd Day Of Intervention
The Bank of Japan on Tuesday kept up its relentless quest to defend a key yield cap by offering to buy unlimited amounts of 10-year government bonds, putting even more downward pressure on the yen and testing its resolve to keep policy ultra-loose.
The move is in line with an announcement the BOJ made on Monday to offer unlimited bond buying from Tuesday to Thursday to keep the 10-year Japanese government bond (JGB) yield from rising above an implicit 0.25% cap it sets around its 0% target.
Aside from the offer to buy unlimited amount of 10-year JGBs at 0.25%, the BOJ may also conduct unscheduled buying operation for super-long bonds if yields for the maturity spike, analysts say.
"With regard to the outright purchases of JGBs...the BOJ may change the schedule and amounts of the purchases as needed, taking account of market conditions," the BOJ said in Monday's statement announcing its plan for fixed-rate operations.
Struggling to swim against the tide of rising interest rates globally, the BOJ staunchly defended its 0.25% yield cap on Monday with a rare step of offering to buy unlimited sum of 10-year JGBs at 0.25% twice in a single day.
The central bank then announced its plan for consecutive interventions that will last until Thursday.
The 10-year JGB yield fell 0.5 basis point to 0.245% on Tuesday, after hitting the 0.25% cap on Monday and triggering the BOJ's intervention.
The BOJ's move pushed the yen to six-year lows against the dollar, which could add to the strains facing households and retailers by inflating already soaring raw material import costs.
The yen's decline, however, likely won't discourage the BOJ from defending its yield cap, said Toru Suehiro, senior economist at Daiwa Securities.
"The BOJ's message to prevent interest rate rises is a very strong one with no consideration to the weak-yen effect its action could cause," said Suehiro.
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