BY LEIKA KIBARA
TOKYO- Investors in Japan’s government bond market are getting a glimpse of life without heavy intervention by the Bank of Japan, which is showing little sign of reverting to a hands-on approach despite the recent steady rise in long-term interest rates.
BOJ Governor Kazuo Ueda issued a mild warning on Friday that it could increase bond buying if “abnormal” market moves trigger a sharp rise in yields, but he was reiterating the bank’s pledge made when it began tapering bond purchases in July last year.
Ueda said the BOJ was unwavering in its stance to allow market forces to determine long-term interest rates.
After ditching a policy capping bond yields around zero last year, the BOJ has set an extremely high hurdle for conducting emergency bond buying operations – a tool it sets aside only for exceptional cases such as an abrupt, uninterrupted spike in bond yields, said two sources familiar with the bank’s thinking.
“It’s natural for bond yields to creep up if market bets on the (BOJ’s) terminal rate is rising,” one of the sources said, a view echoed by another source.
“I don’t think the BOJ is too worried about the moves, which are grinding rather than abrupt,” the second source said.
Japanese government bond yields (JGB) have risen steadily since October last year, initially driven mostly by rising US Treasury yields.
The BOJ’s decision to raise short-term rates to 0.5 percent in January, as well as stronger than expected domestic GDP and inflation data, have accelerated the upward move. The benchmark 10-year yield hit a 15-year high of 1.44 percent on Thursday, driven by bets the bank could take rates higher than initially thought.
