The Bank of Japan took its fifth intervention in the Japanese government bond (JGB) market this month. This move was prompted by the recent surge in 10-year yields, reaching the highest point in a decade.
At the start of the trading day, JGB yields climbed to 0.845%, marking their highest level since July 2013, following the previous day's upward trend.
That being said, the situation shifted as the Bank of Japan intervened by providing funds to incentivize financial institutions to acquire JGBs under favorable terms. Consequently, benchmark yields eased to 0.83% and later settled at 0.835% by 6:10 a.m. GMT, only half a point lower than the previous day's closing level.
As part of its yield curve control (YCC) strategy, the Bank of Japan has set a 1% limit on the 10-year bond yield, demonstrating its readiness to step in and prevent significant rate hikes in the market.
In the past few weeks, we've witnessed substantial policy intervention as Japanese government bond rates respond to the uptick in U.S. Treasury yields. On Friday, the yield on the 10-year Treasury note surpassed 5%, marking the first time it had done so in over 16 years.
In its most recent operation, the Bank of Japan extended the offer to provide secured loans with a five-year term, using this tool for the second time within the same month. Aside from that, the central bank had the option to boost bond purchases, a strategy it had already implemented three times this month, including earlier this week.
The Bank of Japan remains cautious in its interventions within the bond market, given that excessive intervention could potentially result in the yen depreciating against the dollar, a threshold that many view as a critical point for currency intervention, around the 150 level.
The significant variance in interest rates has resulted in a 7.1% depreciation of the yen against the dollar since the Bank of Japan's policy announcement in late July. That said, the exchange rate has steadied itself below the 150 mark after briefly surpassing this threshold earlier in the month. Although there has been speculation about government intervention in the foreign exchange market, Bank of Japan data indicates that such intervention did not occur.
The weakened yen has stirred political unease as it leads to higher prices for imported energy and food, which comes at a time when the Prime Minister of Japan Fumio Kishida may be contemplating early elections.
Login in Personal Account
153