BOJ Intervenes as JGB Yields Reach Decade Highs Following YCC Adjustment, Reports Reuters

By Brigid Riley and Kevin Buckland

TOKYO – In a notable market move, the Bank of Japan (BOJ) intervened in the government bond market following its recent adjustment to long-term interest rates. This intervention aimed to address a significant spike in yields, which reached levels not seen in a decade, signaling the bank’s intention to maintain some control over rapid market movements.

On Wednesday, the yield on the 10-year Japanese government bond increased by 2 basis points to 0.970%, a peak last recorded in May 2013, but retreated promptly after the BOJ’s announcement of an emergency bond-purchase operation, resting at 0.955% as of early morning GMT.

“They’ve indicated a willingness to allow the market to seek a new balance, while also reminding investors that they can intervene if yields rise too quickly,” noted Claudio Irigoyen, global head of economics at BofA Global Research.

On Tuesday, the BOJ made a significant shift from its long-standing policy of ultra-loose monetary stimulus by altering the 1% ceiling for the 10-year yield from a fixed cap to a reference point. The central bank also rescinded its commitment to buy unlimited amounts of bonds at that level, aligning with global market trends and rising domestic inflation rates.

“There is a prevailing sense of caution in the market suggesting we are gradually moving toward policy normalization,” stated Keisuke Tsuruta, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Despite the BOJ’s efforts to stabilize the 10-year yield, other bond yields continued to rise. The five-year yield climbed to 0.485%, the highest since April 2011. Additionally, the 20-year JGB yield reached 1.745%, marking the first time since July 2013, and the 30-year yield hit 1.91%, a level last observed in May 2013. The two-year JGB yield had not yet traded post-intervention but earlier had climbed to 0.160%, a peak not seen since July 2011.

James Malcolm, a UBS currency strategist in London, remarked that yield curve controls are now "simplified but effectively no longer functional,” adding, “The positive perspective is that diminished control may assist in the recovery of market functionality.”