Bank of Japan conducts first special bond operation to curb rise in yields

A Japanese flag flutters atop the Bank of Japan building in Tokyo.
A Japanese flag flutters atop the Bank of Japan building in Tokyo.PHOTO: REUTERS

TOKYO (REUTERS) - The Bank of Japan conducted its first special operation on Thursday (Nov 17) to curb rising yields on Japanese government debt, offering to buy an unlimited amount of bonds at fixed rates after global bond yields spiked in the wake of Donald Trump's election to US president.

The BOJ said on Thursday it would buy JGBs of 3 to 5 years to maturity at yield of 0.019 percentage point above the previous close, including the benchmark five-year JGBs at the yield of minus 0.04 per cent.

The five-year yield hit a nine-month high of minus 0.04 per cent on Wednesday, about 17 basis points above its levels just before the BOJ's September and November meetings.

The BOJ also offered to buy bonds with one to three years to maturity, including the benchmark two-year bonds at minus 0.090 percent. The yield hit a nine-month high of minus 0.095 percent on Wednesday.

Ten-year JGB futures rose as much as 0.40 point following the BOJ's operation, the biggest gain since the BOJ started the "yield curve control" policy.

The move followed rising expectations of a spike in inflation under a Trump administration that sent JGB yields above the rough targets the BOJ set in September, with the BOJ acting to keep yields around their levels at the BOJ's September policy meeting.

The BOJ said in September that to control JGB yields it would buy JGBs at fixed rate it would set if needed, while also setting an explicit target of "around zero per cent" for the 10-year yield.

A Bank of Japan official told Reuters on Thursday the BOJ undertook those operations following a rise in short- and medium-term bond yields.