Investing

Bank of Japan to Buy More Bonds as Yields Soar to 10-Year High

Tim Fries

Published: October 2, 2023 6:55 am

Last Updated: October 2, 2023 9:01 am

Japan’s Central Bank announced it will buy 5-to-10-year bonds after sovereign yields surged to the highest level in a decade. The announcement put more pressure on the Japanese yen (JPY), with analysts predicting more weakness if bond-buying operations continue.

BoJ Announces Plan to Purchase More Bonds

The Bank of Japan (BOJ) disclosed on Monday another bond-buying plan for this week to bring down yields that are currently standing at 10-year highs. The benchmark 10-year maturity surged to 0.775% on Monday, a level not recorded since 2013, with Japan’s 20- and 30-year yields also sitting at similar peaks.

Japan’s sovereign yields have risen amid rumors that the BOJ plans to terminate its ultra-dovish monetary policy while the Federal Reserve will keep borrowing costs at elevated levels. The Japanese Central Bank has already carried out three unscheduled purchasing operations since July to manage yields after propelling them with policy adjustments.

The bank will buy extra amounts of 5-to-10-year debt on October 4 to slow down the yields’ rally.

More Bond Purchases Could Accelerate Yen’s Downfall, Analysts Warn

Japanese bonds have been under pressure due to a combination of factors, including the BOJ’s recent discussions about ending the negative interest rate as the super-easy approach continues to batter the yen.

The JPY continued to slide on Monday after the BOJ’s announcement. The yen fell to the lowest level since October 2022 amid concerns that Japan will intervene in the Forex market to shore up the currency.

Moreover, the analysts warned that BOJ’s additional bond-buying moves could continue to weigh on JPY. Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, said “additional operations could accelerate the speed of yen’s weakening” by preventing debt yields from rising.

“It will eventually become impossible to continue with these operations.”

– Koguchi warned.

Last week, Japan’s finance minister Shunichi Suzuki issued a warning after the yen breached the 149 mark, hinting at a potential market intervention. The USD/JPY pair currently stands at 149.7, close to a 1-year high of 150.1.

Yen’s downfall over the past year and a half can be primarily attributed to the major discrepancy in the monetary policy between Japan and other central banks. To be more specific, global central banks have been constantly hiking interest rates since March 2022 to bring down record-high inflation, while BOJ held onto its dovish approach during that period, pushing the yen lower against a basket of currencies.

This article originally appeared on The Tokenist