© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-src9) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon/File Photo/File Photo
By Junko Fujita
TOKYO (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 src0-year bonds for four consecutive sessions.
The move comes as the yield on the src0-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 src0-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 src0-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..
The benchmark climbed to the highest since late 20src8 at 2.98src% 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 (NYSE:) Securities.
“If the central bank allows src0-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 src0-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.src billion yen ($src.75 billion) in bids it received in Wednesday’s operation.
The bank had also offered to buy unlimited amounts of src0-year bonds at 0.25% in February and made four consecutive days of offers in March.
With the Japanese economy still weak and inflation modest, the BOJ has stressed its resolve to keep policy ultra-loose even as the U.S. Federal Reserve looks set to raise rates aggressively to stem soaring prices.
BOJ Governor Haruhiko Kuroda said on Monday the yen’s recent moves had been “quite sharp” and could hurt companies’ business plans, offering his strongest warning yet of the risks stemming from the currency’s depreciation.
Minister of Finance Shunichi Suzuki was more categorical on Tuesday, warning that the damage to the economy from a weakening yen at present is greater than the benefits.
The yen sank to near src30 per dollar on Wednesday – a level not seen for two decades – raising the risk of direct intervention, where the central bank would buy up large amounts of yen in the open market with its foreign-currency reserves.
The last time Japan intervened to support its currency was in src998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflows from the region.
($src = src28.6500 yen)