TOKYO Feb 3 Japanese government bond yields
were yanked back from one-year highs on Friday after the Bank of
Japan conducted a special bond buying operation for only the
second time, arresting an earlier surge in yields.
The benchmark 10-year yield was up half a
basis point at 0.110 percent after climbing to 0.150 percent,
its highest since late January 2016.
Longer-dated JGB yields had surged across the board earlier
on Friday on disappointment over a regular BOJ debt buying
operation that excluded the purchase of superlong bonds.
The central bank, however, later offered to buy 10-year JGBs
in a special operation, dragging down the benchmark yield from
its session high.
The BOJ offered to buy 10-year JGBs at a yield of 0.110
percent and said the purchase was aimed at keeping the benchmark
yield at its target of around zero percent.
"For now, the 10-year yield appears to be capped at current
levels after the buying operation showed where the ceiling was,"
said Soichi Takeyama, fixed-income strategist at SMBC Nikko
"But on the other hand, yields are unlikely to fall much
further from here because of the recent spike in volatility,
caused by events like yesterday's weak 10-year auction.
Volatility has sapped investors' strength and it could take a
while before they regain their footing."
The central bank maintained a pledge to guide the 10-year
JGB yield at around zero percent after its policy meeting on
Tuesday, but the financial markets have begun to speculate about
when the central bank might allow long-term rates to drift
The market has become jittery over the BOJ's regular debt
buying operations after receiving a rude shock late in January,
when the central bank skipped a short-term JGB buying operation.
Investors have since been left wondering about the BOJ's
intentions and casting doubt on its resolve to cap bond yields.
With markets accustomed to huge bond buying by the BOJ, any
sign of slowdown in its purchases has heightened market
volatility and prompted market speculation it could withdraw
stimulus earlier than expected.
The gyrations in the JGB market impacted currencies as well.
The dollar reversed earlier losses and gained against the yen
, with the pullback in JGB yields from one-year highs
denting the Japanese currency's appeal.
The dollar has gained steadily against the yen on
expectations that U.S.-Japanese interest rate differentials
would widen further if the Federal Reserve went through with a
series of interest rate hikes. The recent rise in Japanese
yields have worked against the dollar by challenging this
"The yen might continue to weaken against the dollar after
today's action," said Masashi Murata, senior currency strategist
at Brown Brothers Harriman.
"Some participants may have concerns about the BOJ's
previous actions, or lack of action, when JGB yields have risen,
so it's a good signal," he said. "But my feeling is that BOJ
also doesn't want to keep expanding their balance sheet."
The gravitational pull on yields following Friday's special
buying operation by the BOJ was not felt as strongly in the
superlong JGB maturities.
The 20-year yield was up 2 basis points at
0.705 percent after declining briefly to 0.685 percent after the
BOJ's special buying operation from a one-year high of 0.730
The BOJ has not explicitly explained that its "yield curve
control" scheme, rolled out in September to keep the 10-year
yield around zero percent, stretches out through the superlong
The rise in superlong yields have been more pronounced as
result and has led to a significant steepening of the curve,
with the 10-year/30-year yield spread at its widest since March
(Additional reporting by Lisa Twaronite in Tokyo)