BOJ ramps up bond buying ahead of policy meet, yields fall sharply

Exterior of Bank of Japan's headquarters is pictured in Tokyo, Japan, June 17, 2022. REUTERS/Kim Kyung-Hoon

TOKYO, Oct 26 (Reuters) - The Bank of Japan increased the amount of bonds it was planning to buy in the day's operations on Wednesday, affirming its commitment to defend its ultra-low interest rate policy amid a recent surge in yields.

The market immediately reacted to the move, with the 30-year JGB yield falling 12.5 basis points (bps) to 1.445%, its lowest since Oct. 12.

The 20-year JGB yield slipped 8.5 bps points to 1.110%, its lowest since Oct. 18.

"The market sentiment was good today as U.S. Treasury yields fell overnight so JGB yields would have fallen anyway," said Naka Matsuzawa, a strategist at Nomura Securities.

"But the BOJ wanted to send a message to the market that it would contain a surge in yields on super-long notes."

Investors have been testing the central bank's resolve to pin down interest rates, sending yields on super-long ends to multi-year highs this week.

The BOJ has remained an outlier among its global peers which have been aggressively raising rates in a bid to curb inflation. It is expected to keep policy unchanged at its next meeting ending on Friday, despite continued weakness in the yen.

The BOJ's latest move came after it conducted emergency bond buying for two straight sessions last week, only to see yields keep rising.

Yields on shorter end notes also fell on Wednesday, with the two-year JGB yield retreating 1 bps to -0.025%. The five-year yield fell 3 bps to 0.085%.

The benchmark 10-year JGBs were not traded and the yield stayed at 0.250%, the upper limit of the BOJ's policy band, as the bank continues daily offers to buy unlimited amounts of the bonds of the same maturity.

The BOJ offered to buy 350 billion yen ($2.36 billion) of bonds with 10- and 25-year maturities, up from 250 billion yen it had planned.

The BOJ said it would also buy 575 billion yen of bonds with 3- to 5-year maturities, up from a planned 475 billion yen, and 150 billion yen of bonds with maturities more than 25 years, up from 100 billion yen.

($1 = 148.1500 yen)

Reporting by Junko Fujita; Editing by Jacqueline Wong and Kim Coghill

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