BOJ to purchase 10-year JGBs as global yields soar

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BOJ to purchase 10-year JGBs as global yields soar

TOKYO The Bank of Japan said it would purchase Japanese government bonds in a special operation on Tuesday, with the benchmark 10 year yield brushing against the 0.25 per cent policy ceiling as the central bank battles a relentless upward surge in global rates.

The BOJ stands alone among developed markets in keeping the short-term policy rate negative, in addition to pinning the zero long-term yield, citing tepid wage growth, relatively low core consumer inflation and a fragile economic recovery.

The BOJ will purchase debt with 10 to 25 year maturities worth $10092.28 million and securities with 5 to 10 year maturities worth 150 billion yen.

The benchmark 10 year JGB yield was up 0.5 basis point at 0.25 per cent, as of 0538 GMT, a level not seen since Sept. 16. Under its yield curve control policy, the yield is at - 25 basis points around zero.

Japan's bond market is under pressure due to a broad climb in global yields as major central banks such as the U.S. Federal Reserve and the European Central Bank try to raise interest rates to rein in superheated inflation.

The BOJ is trying to calm down speculation that it could be forced to change policy, said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management in Tokyo.

It makes clear that it does not intend to change monetary policy for the foreseeable future. Japan's central bank maintained its stance last week despite growing policy divergence pushing the yen to 24 year lows. Japanese authorities have intervened in the foreign exchange market for the first time since 1998 to shore up the battered currency.

The upward trajectory in rates has been exacerbated in recent days by soaring UK gilt yields after investors gave a scathing assessment of the new government's fiscal plans.

The 10-year JGB futures fell 0.29 point to 147.71 after earlier touching a three month low of 147.62.

The BOJ controls the yield, but other maturities are not controlled, so we're seeing a skew, a kind of bizarre shape of the yield curve, said Sumitomo Mitsui's Kichikawa.

After a very poor result for a 20 year bond sale on Sept. 15, traders said the market had also been on edge ahead of an auction of 40 year JGBs. Market players said that the latest sale went smoothly.

The 40 year JGB yield jumped 8.5 basis points to 1.635 per cent, the highest level in Refinitiv data going back to 2015, up from 8.5 basis points to 1.635 per cent.

The yield on the 30 year JGB increased 6 bps to 1.435 per cent for the first time since September 2015, while the 20 year yield increased 4 bps to 1.03 per cent for the first time since December 2015.

The five-year yield increased by 2 bps to 0.09 per cent, a level not seen since September 2015.

The two-year yield rose 1 bp to a three-month high of 0.050 per cent.