BOJ unveils bond-buying plan to reassert control

The BOJ said yesterday that it will carry out two operations, one to buy securities maturing in one to three years, and another for debt of three to five years' maturity. The yield for the two-year note will be minus 0.09 per cent, and that for the f
The BOJ said yesterday that it will carry out two operations, one to buy securities maturing in one to three years, and another for debt of three to five years' maturity. The yield for the two-year note will be minus 0.09 per cent, and that for the five-year note will be minus 0.04 per cent.PHOTO: REUTERS

Central Bank's move comes as Japan's debt is caught in global rout following US election

TOKYO • The Bank of Japan (BOJ) announced its first operations to purchase an unlimited amount of bonds at a fixed rate to reassert its control over the world's second- biggest debt market.

BOJ governor Haruhiko Kuroda is seeking to assert his control over the world's second-biggest bond market after 10-year Japanese government bond (JGB) yields turned positive this week for the first time since Sept 21, the day the central bank announced a shift in policy aimed at pegging them near zero.

Japan's debt has been caught in the global rout sparked by bets that United States President-elect Donald Trump's stimulus policies will drive up inflation. An index of expected JGB market turbulence has surged to the highest since September's policy announcement.

"It's a surprise that the BOJ took action," rates strategist Souichi Takeyama, from SMBC Nikko Securities, told Bloomberg. "Markets won't test levels above these fixed rates as these will be seen as reflecting the BOJ's upper limit."

The central bank said yesterday that it will carry out two operations, one to buy securities maturing in one to three years, and another for debt of three to five years' maturity.

The yield for the two-year note will be minus 0.09 per cent, and that for the five-year note will be minus 0.04 per cent. That came after two-year yields rose as high as minus 0.095 per cent on Wednesday, up 18 basis points in five days.

The BOJ introduced the tools after deciding in September that it would seek to control the sovereign yield curve. Even so, the operation drew no bids, according to the monetary authority. The 10-year JGB yield was at 0.015 per cent as of 11.52am in Tokyo (10.52am in Singapore ) yesterday, after jumping as high as 0.035 per cent on Wednesday, a level unseen since mid-February. It had fallen to a record minus 0.3 per cent in July.

Mr Kuroda said in Parliament after the announcement of the operation that the BOJ will not automatically allow Japanese rates to rise if rates rise in the US. At the same time, he reiterated that the BOJ is aiming for a 10-year yield of "about" zero per cent, and it cannot achieve a yield target of exactly one level.

Meanwhile, Prime Minister Shinzo Abe told business leaders that he expects firms to raise wages next year despite a fall in profits, the Financial Times has reported.

Sluggish wage growth has hit consumption in Japan, leaving the economy in the grip of deflation for a generation. A pay rise would boost incomes, consumption and inflation.

A version of this article appeared in the print edition of The Straits Times on November 18, 2016, with the headline 'BOJ unveils bond-buying plan to reassert control'. Print Edition | Subscribe