Bank of Japan announces surprise bond-buying plan to temper rising yields

Bank of Japan on Thursday announced its plan to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework. The move took market participants by surprise and is the first clear sign that the central bank intends to take action to keep a lid on yields.

Japanese government bond yields surged globally on rising expectations that the presidency of Donald Trump would lift inflation and growth. The 10-year JGB yield rose to its highest level since March on Wednesday.

Bank of Japan Governor Haruhiko Kuroda has said earlier that  he wouldn’t allow market pressure from abroad to dictate the course of Japanese government bond yields, highlighting his resolve to hold interest rates down.

Yields on two-year and five-year Japanese government bonds fell Thursday after the BOJ’s announcement. The 10-year yield also briefly fell to 0.010% after hitting as high as 0.025% earlier in the morning.

"It is interesting because when the yield curve control mechanism was first announced, the market assumed that the volume of QE purchases would be reduced. Today's move shows that pegging the long term interest rate and pre defining a fixed amount of asset purchases are two contradictory objectives and the quantitative target will probably have to be removed at some time.” says BNP Paribas in a report.

At around 1240 GMT, FxWirePro's Hourly USD Spot Index was at 19.5385 (Neutral bias) while JPY Spot Index was at -85.3453 (Slightly bearish). For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex