Bank of Japan purchases bonds in amount exceeding previously planned one

At the beginning of the week, the Bank of Japan purchased a larger number of bonds than it had initially intended due to the benchmark yield approaching the upper limit of the trading range that is determined as tolerated by the central bank. The purchase took place at the bank’s regular operation on Monday.

The Bank of Japan has spent 550 billion yen (which equals $3.8 billion) on 5-to-10-year notes, which has become the third case when it buys an amount exceeding the initial plan of 500 billion. The mentioned purchase was also preceded by an unplanned purchase of 150 billion yen of the same debt securities last week. There were two other types of debt which were bought, which were one-to-three and three-to-five year notes. Their amounts remained unchanged, with 475 billion yen being paid for each mentioned type.

The Bank of Japan has additionally performed an operation, which provides for a possibility of purchasing a limitless amount of ten-year bonds at a yield set on a fixed level of 0.25%. The yield on the benchmark ten-year note has increased by 1.5 basis point and reached the level of 0.245%, which is pretty close to the limit set by the Bank of Japan on the level of 0.25%.

Haruhiko Kuroda, governor of the Bank of Japan, sticks to a continued policy of accommodation, while the U.S. and other large economies of the world tend toward further monetary tightening. These facts combined may explain the difference in the yield between Japan and other developed countries. The fall of the yen induced the government’s intervention in an attempt to support the national currency last week, which became the first incident of such type since 1998.

According to the words of SMBC Nikko Securities strategist Ataru Okumura, increasing volatility across the curve was the reason of the large purchase of bonds made by the Bank of Japan. He added that investors are likely concerned by the possibility of further growth of inflation caused by continuing fall of the yen, which might make the Bank of Japan correct its policy.