By Leika Kihara

TOKYO, Reuters – Japan’s central bank has increased efforts to protect its yield cap and offered to purchase more government bonds along the curve. This includes unscheduled market operations.

This is a sign that the Bank of Japan intends to continue monetary policy at a very loose level, even if it means fueling more yen falls which may push up imports and harm the economy.

The BOJ stated that it would increase its purchase of Japanese government bonds (JGBs) of maturities between three and ten years, by an additional 450 billion Japanese yen ($3.66 trillion) during Wednesday’s market operation.

It also stated that it was willing to purchase 250 billion yen for super-long JGBs during unscheduled and emergency operations.

The BOJ stated in a statement that it would increase auction dates as well as the outright JGB purchase amount depending on market conditions.

This move strengthens the BOJ’s intervention in bond markets, which runs from Monday to Thursday. The BOJ offers unlimited quantities of 10-year government bonds for 0.25%.

After the announcement, JGB’s 10-year yield dropped 2 basis points (0.225%) to 0.225%.

A BOJ official said to Reuters that the decision was made because of strong upward pressure on the yield curve, increasing the chance that the 10-year yield will exceed our upper limit.

According to yield curve control, BOJ set the short-term target rate for the BOJ at -0.1% while the JGB 10-year yield is around 0%.

Current guidance from the Fed is that the yield on a 10-year note can move freely as long as the implied 0.25% ceiling is not exceeded.

The BOJ offered to purchase unlimited 10-year JGBs for 0.25% on Monday, despite the rising tide of global interest rates.

Additionally, it announced that the plan was to purchase the note in unspecified volumes at the 0.25% fixed-rate rate starting Tuesday and continuing to do so until Thursday.

($1 = 122.9400 yen)