Junko Fujita

TOKYO, Reuters – On Monday the Bank of Japan successfully defended the key bond yield target. The Bank of Japan maintained its strict monetary policy and the 10-year government bond yield fell after it pledged support from the market to prevent rates rising.

Last week, the BOJ stated that it will buy unlimited amounts of 10-year bonds for 0.25%. This is to keep rising global yields and domestic borrowing costs from increasing too much.

A benchmark 10-year cash JGB yield of 0.215%, which had reached a record six-year peak this month, fell one basis point. It was as low at 0.200% the previous day.

As there weren’t any offers to purchase the debt, BOJ stated that it didn’t make any purchases.

Although investors weren’t willing to put the BOJ at 0.25%, it is expected that its fight with market participants will continue. Masaaki Kanno was chief economist at Sony (NYSE:) Financial Group, former BOJ official.

Kanno stated that although investors respected BOJ’s message, they didn’t make any threats today. However, this fight will continue for a while.

With global rates increasing, it may be difficult to defend the current level. The BOJ might also have to perform special operations multiple times. The unlimited buying effect may diminish in that situation.

On Monday, the global pressure could be seen in other areas such as the bond yield curve. Rates on all maturities were rising.

The 5-year yield rose 0.5 basis point to 0.035%. It was its highest rate since December 2015. The yield on the 20-year JGB rose 1.5 basis points, to 0.670%. This is its highest level since November 2018.

The yield on the 30-year JGB rose 1.5 basis point to 0.885%, while that of the JGB for 40 years rose 1.5 points to 0.935%.

At minus 0.035%, the two-year JGB yield remained flat. A combination of the prospect that the U.S. would tighten its policy faster and expectations that the BOJ will need to ease its ultra-loose monetary policy caused the benchmark 10-year yields last week to rise to 0.230%. It was the highest rate since 2016. This compares with 2016, which is close to the implicit 0,25% limit the BOJ has set around its 0% target.

Investors expected that the central bank would buy unlimited amounts of 10 year JGBs at a fixed price. This was seen as the strongest option within the BOJ’s policy toolkit.

Hirokazu Mattsuno, Japan’s chief Cabinet Secretary, stated Monday that the central bank will continue its efforts to increase inflation to 2%.

“Specific monetary policy falls within the Bank of Japan’s purview. Matsuno said that the BOJ will continue its efforts to achieve its price goal.

This is the second special offer by BOJ to purchase bonds. To achieve its policy objective of keeping the yield at 0%, the central bank implemented the special offer to buy bonds in 2016.