By Leika Kihara

TOKYO, Reuters – Monday’s offer by the Bank of Japan to purchase unlimited quantities of Japanese 10-year government bonds (JGBs), at 0.25% was made. This is in order to protect its implicit yield limit for the second year.

This was after the JGB 10-year yield climbed to a 6-year high of 0.2245% in early trading, less than half a basis point short of the BOJ’s yield curve control policy’s tolerance limit.

As investors paid attention to the possibility of wider U.S.-Japan interest rates differentials, the offer was the first since February 10. It will be made on Tuesday.

Masahiro Ishikawa, Chief Market Strategist at Sumitomo Mitsui (NYSE) DS Asset Management, stated that the move was awaited.

“This operation sends a signal from the BOJ to maintain an ultra-easy approach for the time being.” he stated.

As investors are priced into the possibility of Fed rate increases, the 10-year JGB yield is increasing in parallel with an increase in U.S. Long-term Interest Rates.

The BOJ was asked by markets to step in on Friday to protect the 0.2% ceiling. However, they did not on Friday because the yield on the 10-year bond surpassed the level where the central banks had made an offer to purchase unlimited amounts in February.

Current guidance from the BOJ is to allow 10-year yields to drift around 0%, provided they stay below the 0.25% limit. But it will consider not only the amount but also the pace of yield rises.

As investors are pricing in aggressive Fed rate increases over the next year, the 10-year JGB yield is increasing in tandem with an increase in U.S. longer-term interest rates.

BOJ Governor Haruhikokuroda stated repeatedly that interest rates would be maintained at their current low levels because of fragile economic recovery. Inflation remains below 2%.