Bank of Japan Initiates Impromptu Bond Purchase Operation

24 Oct, 2023

Bank of Japan Initiates Impromptu Bond Purchase Operation

The Bank of Japan, in response to the recent surge in Japanese government bond yields to decade-high levels, made an unscheduled announcement on Tuesday regarding a bond operation. Japan's central bank disclosed its intention to purchase 300 billion yen ($2.00 billion) worth of bonds with maturities ranging from five to ten years and an additional 100 billion yen worth of bonds with maturities between 10 and 25 years, effective from Wednesday. This move was in addition to their routine offer to buy an unlimited quantity of Japanese Government Bonds (JGBs) at a fixed rate of 1 percent.

Following the Bank of Japan's announcement, the 10-year JGB yield experienced a marginal decline of 0.5 basis points, settling at 0.855 percent, after previously trading at the same level as the previous day's closing rate of 0.86 percent. This closing rate was the highest since July 2013.

The increase in Japanese yields has been attributed to a surge in U.S. Treasury yields, with the 10-year U.S. Treasury note surpassing 5 percent overnight, reaching a 16-year high. The Bank of Japan maintains its yield curve controls (YCC), capping the 10-year yield at 1 percent, as a result of a policy adjustment made in late July. Although the yield remains significantly below this threshold, policymakers have been taking proactive measures to temper the pace of these increases.