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The central bank of Japan has been very active in the bond market lately, largely to prevent the volatility to rise excessively as it nears the time to reverse its extra-ordinary easy monetary policies, which has been in place since 2012. The central bank has shown its determination to defend its Yield Curve Control (YCC) as a tool to tweak monetary policies with recent actions, however, those same actions force us to ask, whether the central bank is struggling lately to contain the yield.
Actions taken by BoJ:
As the 10-year yield breached the 0.1 percent mark a week, before the Bank of Japan meeting on last Tuesday, the central bank responded aggressively with the upward pressure on the yield over speculation that the central bank might finally reverse its ultra-loose monetary policy. On Monday, the central bank offered to buy an unlimited amount of 10-year Japanese government bonds at 11 basis points and on previous Friday, in a special auction, it offered to buy an unlimited amount of Japanese bonds (10-year) to keep the yield in check.
And, at the meeting, the central bank announced that it would tolerate 10-year yield up to 0.2 percent.
And today, the central bank offered to buy ¥400 billion ($3.85 billion) worth of Japanese government bonds with varying maturity up to 10-years as yields reached 0.145 percent, the highest in 18 months. The yield has now declined to 0.11 percent after the central bank’s intervention.
