By Leika Kihara

TOKYO, Reuters – Tuesday’s offer by the Bank of Japan to purchase unlimited 10-year bonds of government debt for a guaranteed yield of 1% put more pressure on Japan’s yen. It also tested its determination to maintain a loose policy.

This move follows an BOJ announcement on Monday that it will offer unlimited bond purchasing from Tuesday through Thursday in order to prevent the yield of the Japanese 10-year government bond (JGB), above the implicit 0.25% limit. It is intended to maintain its 0% target.

Analysts say that the BOJ will offer unlimited 10-year JGBs at 0.2%5% and may conduct an unscheduled buy operation for long bonds, if the yields rise.

“With respect to the outright purchase of JGBs…the BOJ could change the schedule, amounts and purchases as required, taking into consideration market conditions,” said the BOJ in Monday’s announcement announcing fixed-rate operations.

The BOJ was struggling to resist rising interest rates worldwide and defended its 0.2% yield cap Monday. However, it took the unusual step of offering unlimited amounts of 10 year JGBs at 0.25% for purchase twice within a day.

The central banks then presented its plan to make consecutive intervention that would last up until Thursday.

On Tuesday, the yield on the 10-year JGB fell by 0.5 basis points and was at 0.245%. It had reached the 0.25% cap Monday which triggered the BOJ’s intervention.

BOJ’s action pushed the Japanese yen down to six-year highs against the dollar. This could increase the pressure on households and retailers as it will inflate already rising raw material import prices.

However, the BOJ’s decline in the yen won’t stop it from protecting its yield cap. Toru Suehiro is a senior economist at Daiwa Securities.

Suehiro said that the BOJ’s message of preventing interest rate rises was very powerful and did not consider the potential weak-yen effects it might have.