UPDATE 1-Bank of Japan boosts bond purchases in Oct-Dec quarter to curb yields

Junko Fujita
·2 min read

(Adds comment, background)

By Junko Fujita

TOKYO, Sept 30 (Reuters) - The Bank of Japan (BOJ) on Friday boosted its planned purchase of longer-ended government bonds in the next quarter, extending efforts to curb elevated yields against a global tide of rising yields.

The BOJ said it would double its purchases of JGBs with 10- to 25-year maturity in October-December to 250 billion yen ($1.73 billion) per operation compared with the current quarter.

The bank last week affirmed its commitment to ultra-low policy, keeping unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield.

However, investors have been testing the central bank's resolve to pin down interest rates, sending the yield on benchmark 10-year JGBs close to the upper limit of the BOJ's policy band of 0.25%, despite the bank's daily offer to buy unlimited amounts of the bonds.

Market participants say the increase in the planned purchase amount is not enough to turn the trend.

"Japan's consumer prices have been rising and the yen remains weak. If the BOJ forces yields down, prices could rise further and the yen could weaken," said Masayuki Koguchi, general manager at the fixed income investment division of Mitsubishi UFJ Kokusai Asset Management.

"Fundamentally, it is hard to lower interest rates."

Yields on longer notes, which are outside the BOJ's primary target window, rose to multi-year highs this week, with the 40-year JGB yield hitting its highest level in Refinitiv data going back to 2015.

In the operation, the bank also plans to buy 550 billion yen of 5- to 10-year bonds each time, up from 500 billon yen from the previous quarter.

It also plans to double the purchase of bonds with maturity of more than 25 years to 100 billion yen from the current quarter. ($1 = 144.3000 yen) (Reporting by Junko Fujita Editing by Mark Heinrich, Robert Birsel)

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