BOJ Steps Into Market to Cap Yields Amid Global Bond Selloff
Comment of the Day

March 28 2022

Commentary by Eoin Treacy

BOJ Steps Into Market to Cap Yields Amid Global Bond Selloff

This article from Bloomberg may be of interest to subscribers. Here is a section:

The BOJ’s yield curve control framework aims to cap the 10-year yield, while allowing more flexibility for longer-tenor yields. There’s also talk among traders over whether the BOJ will act to bring down yields for longer-tenor bonds.

“Focus turns to whether the BOJ will also try to control 20- or 30-year maturities, but it’s likely the bank will tolerate the rise in these super-long yields,” said Mari Iwashita, chief market economist at Daiwa Securities in Tokyo. “By firmly capping 10-year yields, the BOJ can send a signal that it’s keeping an eye on market developments.”

The 30-year yield matched a six-year high of 0.995% reached last month. 

The central bank has kept planned purchase amounts for all maturities including super-long bonds steady since July after tweaking operation schedule to quarterly from monthly. It will announce the April-June plan on Thursday.

The BOJ is expected to continue conducting unlimited fixed-rate bond buying particularly when there is risk of scheduled events of data driving U.S. yields higher after Tokyo session ends, such as U.S. jobs data due on April 1, minutes of FOMC’s March meeting and U.S. CPI.

“How high Japanese yields will rise depends on U.S. yields and the BOJ will likely automatically seek to cap yields if there are anticipated risks of overseas yields climbing,” Daiwa’s Iwashita said.

Eoin Treacy's view

The Bank of Japan continues to target a single point on the yield curve, but every other portion is rising. At present, the curve’s shape remains steep and moving from lower left to upper right which is consistent with easy policy. That begs the question whether continued BoJ activity will create a belly in the curve. That could create an even more distorted picture of Japan’s rising inflationary pressures.

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