Bank of Japan’s record $81-billion bond buy brings calm to market

Bank of Japan’s record $81-billion bond buy brings calm to market

Ten-year yields edged higher to 0.23% Monday in the aftermath of the BOJ’s 10.9 trillion yen ($81 billion) of government bond purchases last week, the most on record


Japan | Bank of Japan | Tokyo

Tokyo’s bond market began the week on a much calmer footing as traders mulled unprecedented intervention by the Bank of Japan, which dragged benchmark yields back below their closely watched ceiling.

Ten-year yields edged higher to 0.23% Monday in the aftermath of the BOJ’s 10.9 trillion yen ($81 billion) of government bond purchases last week, the most on record, data compiled by Bloomberg show. The central bank ramped up bond buying as benchmark yields breached its 0.25% tolerated limit amid a global debt selloff.

By way of comparison, European Central Bank asset purchases under its so-called APP program averaged about $27 billion — per month — this year through May.

Market watchers see the calm as temporary as the BOJ continues to defy an intensifying global wave of central bank tightening and concentrated market pressure on the yen and government bonds. Treasuries are closed for the Juneteenth holiday Monday, but remain a key driver as does the direction of the dollar-yen, hovering around a 24-year low.

“If the yen weakens further as a sell-off in foreign bonds resumes, it would not be surprising were the yen rates market to start testing the BOJ again,” wrote Citigroup Inc. strategist Tomohisa Fujiki in a note.

Implied volatility for 10-year JGBs eased after rising to the highest since the global financial crisis in 2008 on Friday. The BOJ said Friday its bond buying will continue for an extended period of time.

“Since the JGB market volatility has been initiated by the global reaction to US CPI and the Federal Reserve’s tightening, the structure keeping it unstable remains quite intact,” said Mari Iwashita, chief market economist at Daiwa Securities. “Even as the BOJ steps up efforts to defend its turf, the structure behind the challenges remain the same.”

Speculative attacks on Japan’s bond market have mounted amid bets the BOJ will cave in to pressure and tweak its increasingly isolated easy monetary policy — something it reconfirmed at its policy decision Friday. But the impact of the central bank’s bond purchases have squeezed some corners of the futures markets, putting at least some arbitrage traders under pressure.

Meanwhile, the appointment of a Japanese government bond expert with experience of the market turmoil of the late 1990s to a key role in the Finance Ministry has caught the attention of market watchers in Tokyo. Michio Saito — dubbed “Mr. JGB” — will head up a division that covers the bond market and may strengthen lines of communication with the central bank, according to some strategists.

For the BOJ to seek a smooth exit from massive bond purchases, close cooperation with the finance ministry is essential, so the appointment of an experienced person in charge is very significant, Iwashita said. This “is positive news for the market,” she said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Read More


Please enter your comment!
Please enter your name here