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The Bank of Japan made unplanned purchases of government bonds on Wednesday, sending benchmark bond yields to their highest levels in a decade, while a global market selloff continued to push U.S. Treasury yields to 16-year highs.
The Bank of Japan offered to buy 675 billion yen ($4.52 billion) worth of Japanese government bonds with maturities of 5 to 10 years. The BOJ’s offer was part of Wednesday’s purchase of Japanese government bonds of various maturities totaling 1.9 trillion yen ($12.7 billion). Traders said the unscheduled portion of the offer significantly exceeded market expectations.
The Bank of Japan is under increasing pressure to maintain its policy of controlling the 10-year JGB yield while limiting the yen’s decline, which briefly fell below 150 yen against the dollar for the first time in nearly a year on Tuesday.
¥149.29 The yen weakened again on Wednesday morning
However, despite the central bank’s offer, the yield on the 10-year JGB edged up to 0.783% as markets continued to bet that the authorities were planning to exit the negative interest rate regime that began in 2016. Japan is the last country in the country. Negative interest rates remain around the world.
Yields on five-year and 20-year Japanese government bonds also rose to multi-year highs on Wednesday, reflecting what traders say is the Bank of Japan’s growing inability to respond to prevailing yield trends.
After falling below 150 yen on Tuesday, the yen suddenly rebounded to 147.3 yen, triggering speculation that Japanese authorities may intervene. However, currency analysts and traders in Tokyo mostly believe there will be no direct currency intervention.
Japanese Finance Minister Shunichi Suzuki told reporters he would not comment on whether Tokyo would intervene in currency markets. “We are prepared to take necessary actions to deal with excessive volatility and do not rule out any options,” he said.
The yen weakened again on Wednesday morning, hitting 149.29 yen by lunchtime.
The rise in Japanese bond yields coincides with an ongoing sell-off in U.S. Treasuries, which hit a 16-year high on Wednesday amid bets that interest rates will remain elevated for longer.
The U.S. 10-year Treasury yield rose 0.06 percentage point to a high of 4.85%, before falling back to a rise of 0.05 percentage point to 4.84%. The 30-year U.S. Treasury bond yield also hit a 16-year high, rising 0.05 percentage points to 4.97%.
Strong U.S. economic data has encouraged bets that the Federal Reserve will keep interest rates higher “for longer.” Turbulence in bond markets also hit sentiment in Asian stocks, with Japan’s Topix falling 1.9%, Hong Kong’s Hang Seng falling 1% and South Korea’s Kospi falling 2.2%.
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