Bank of Japan boosts defense of yield target, offers to buy debt for four days

A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon

TOKYO, April 20 (Reuters) - The Bank of Japan on Wednesday boosted efforts to defend its yield target, making a fresh offer to buy an unlimited amount of the 10-year bonds for four consecutive sessions.

The move comes as the yield on the 10-year JGB remained at 0.25%, the upper limit of its target of around zero percent, throughout Wednesday, despite the central bank's offer to buy an unlimited amount of the 10-year bonds at that rate.

"Given recent yield movements on longer-ended notes, we have announced a consecutive unlimited fixed-rate purchase of bonds to achieve our policy to guide the 10-year yield around 0%," the BOJ said in a statement.

The rise in yields comes as the yen weakens sharply to two-decade lows against the U.S. dollar amid a relentless widening of Japanese and U.S. yield spreads, prompting markets to test the central bank's commitment to its super-easy yield-curve-control policy. read more .

The benchmark 10-year Treasury yield climbed to the highest since late 2018 at 2.981% in Tokyo trading on Wednesday.

"The Bank of Japan has no other choice than to keep offering unlimited purchases of JGBs," said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan Securities.

"If the central bank allows 10-year bond yields to keep going up, its message to the market would become unclear."

The BOJ's guidance is that it will allow the 10-year yield to move flexibly around its 0% target as long as it stays below the 0.25% upper limit.

The BOJ accepted all of the 225.1 billion yen ($1.75 billion) in bids it received in Wednesday's operation.

The bank had also offered to buy unlimited amounts of 10-year bonds at 0.25% in February and made four consecutive days of offers in March.

With the Japanese economy still weak and inflation modest, the BOJ has stressed its resolve to keep policy ultra-loose even as the U.S. Federal Reserve looks set to raise rates aggressively to stem soaring prices.

BOJ Governor Haruhiko Kuroda said on Monday the yen's recent moves had been "quite sharp" and could hurt companies' business plans, offering his strongest warning yet of the risks stemming from the currency's depreciation. read more

Minister of Finance Shunichi Suzuki was more categorical on Tuesday, warning that the damage to the economy from a weakening yen at present is greater than the benefits. read more

The yen sank to near 130 per dollar on Wednesday - a level not seen for two decades - raising the risk of direct intervention, where the central bank would buy up large amounts of yen in the open market with its foreign-currency reserves. read more

The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflows from the region.

($1 = 128.6500 yen)

Reporting by Junko Fujita; Additional reporting by Kevin Buckland; Editing by Jacqueline Wong, Bradley Perrett and Kim Coghill

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