Japan's central bank (BoJ) will buy unlimited 10-year bonds (JGB 10Y) in order to maintain its near-zero yield target.
Japan's central bank (BoJ) displays its persistence to maintain loose monetary policy again. On Thursday, the BoJ said it would buy an unlimited quantity of 10-year Japanese government bonds (JGB 10Y) next week in order to keep its 10Y bond yield target at near zero levels.
The move was taken because traders continued to push yields up, as if trying to "test" the BoJ's commitment to the Yield Curve Control policy. Consequently, the BoJ's move immediately triggered market participants to "throw away" the Japanese yen.
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| USD/JPY Daily Chart via TradingView |
The JGB 10Y yield yesterday hit a six-year record high of 0.23 percent. Traders are speculating that although BoJ Governor Haruhiko Kuroda continues to persist in maintaining monetary stimulus, the BoJ may wish to tighten policy like other central banks.
The BoJ took concrete steps to quell the speculation by declaring its intention to buy an unlimited number of bonds at a predetermined yield rate. Kuroda also immediately made a statement that the central bank is not discussing plans to end ultra-loose monetary policy, and will not discuss it before the end of his term in April 2023. The JGB 10Y yield immediately fell again to 0.21 percent.
Hiroshi Ugai, JP Morgan's chief economist for Japan, told the Financial Times that the BOJ's statement signaled a "strong commitment" to move the 10Y bond yield away from the 0.25 percent threshold. The commitment is realized by maintaining a very loose monetary policy.
This is actually understandable, because Japan's inflation rate recently only increased to 0.5 percent. Although there has been a significant increase, the inflation rate is still far from the central bank's target of 2.0 percent. However, the BoJ's decision contrasts with other major central banks that have or will stop buying bonds. As a result, the Japanese yen took a hit.
The USD/JPY exchange rate suddenly skyrocketed again to touch the highest record since January 2017 at the level of 116.34. USD/JPY's position declined somewhat in Friday's European session trading (11/February), but is still near high levels.
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