The Bank of Japan is highly expected to intervene in the fixed income market once again by buying unlimited bonds at fixed price if yields increase above the Bank of Japan’s target level of zero percent following surge in the United States Treasury prices.
Last week, the BoJ offered to buy an unlimited amount of JGBs with 1 to 3 years of maturity at a yield of 0.020 percent above the previous close. It also offered to purchase an unlimited amount of JGBs with 3 to 5 years to maturity at 0.019 percent above the previous close.
This surprise from the central bank was to bring the 10-year bond yields back to target level of zero percent and lower borrowing cost. The Japanese bonds yield surge following weakness in U.S. Treasury as Federal Reserve December rate hike probability reached above 90 percent after Federal Reserve Chair Janet Yellen, in her congressional testimony, strengthened the case for a rate hike.
Also, the central bank Governor Haruhiko Kuroda confirmed in his recent speech that the central bank will continue to intervene in the fixed income market to keep the JGB yields at a target level of zero percent.
We suggest investors to go long if 10-year bond yields increase sharply above BoJ’s target. The 10-year JGB yield is currently at 0.025 percent market (almost near to zero targets).


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