Junko Fujita

TOKYO, Reuters -The Bank of Japan increased efforts to protect its yield target Wednesday by offering to purchase unlimited amounts of 10-year bonds for four consecutive sessions.

The 10-year JGB yield remained unchanged at 0.25 percent on Wednesday, which is the maximum limit for its goal of zero percent. This was despite central bank offering to purchase unlimited amounts of 10-year bonds at this rate.

The BOJ stated in a statement that “Given the recent yield moves on longer-ended note, we have announced an unlimited fixed-rate purchase of bond to reach our policy to guide 10-year yield around 0.0%”,

In the face of a sharp decline in the yen against the U.S.dollar, and a widening yield spread between Japan and the U.S., the yields rise. This has caused markets to question the central bank’s dedication to its extremely easy yield curve-control policy.

At 2.981%, Tokyo trading was the highest in Tokyo since December 2018.

Takafumi Yawaki, JPMorgan Securities’ head of Japan fixed-income research said that the Bank of Japan had no choice but to continue offering unrestricted JGB purchases.

“If central banks allow 10-year yields on bonds to continue rising, it would be difficult to communicate to the markets.”

BOJ guidance states that the 10-year yield will move freely around the target at 0%, provided it remains below the 0.25% threshold.

All of Wednesday’s 225.1 billion yen ($1.75 trillion) bids were accepted by the BOJ.

Also, in February, the bank made offers to purchase unlimited quantities of 10-year bonds at 0.2%5%. In March, it also made offer for four consecutive days.

The BOJ stressed that the Japanese economy is still in decline and the inflation rate modest. However, the U.S. Federal Reserve appears to be preparing to increase rates to stop rising prices.

BOJ Governor Haruhikokuroda warned Monday about “quite abrupt” yen moves that could affect companies’ business plans. This was his strongest warning of potential dangers resulting from currency depreciation.

Shunichi Suzuki (Minister of Finance) was more blunt on Tuesday. He warned that the current weakening of the yen will cause economic damage greater than its benefits.

On Wednesday, the yen fell to almost 130 dollars per dollar – an unprecedented level in two decades. This raises the possibility of direct intervention. The central bank could buy large quantities of yen on the open market using its foreign-currency reserve.

Japan last intervened in support of its currency back in 1998 when it was hit by the Asian financial crisis. This triggered a sell-off in the yen and rapid capital outflows.

($1 = 128.6500 yen)