Yen Gains as Bond Yields Tumble After BOJ Enhances Asset Buying

Updated on
  • Two-year government yields drop to record low minus 0.055%
  • Kuroda says adjustments were `technical,' not further easing

The yen surged and benchmark Japanese government bond yields dropped to a 10-month low after the Bank of Japan enhanced its asset-purchase program.

Japan’s currency jumped 0.9 percent to 121.48 per dollar as of 10:04 a.m. New York time having initially weakened as much as 0.8 percent after the policy announcement. Ten-year bond yields dropped to 0.265 percent, the least since Jan. 28 and those on two-year notes slid to minus 0.055 percent, an all-time low.

The BOJ maintained its plans to expand the monetary base at a pace of 80 trillion yen ($659 billion) a year at its meeting that ended Friday. It also said it will extend the average maturity of its government bond holdings to seven-to-12 years, announced a program for exchange-traded fund purchases and said it will boost the maximum amount it can buy of any one real-estate investment trust.

“The initial headlines were maybe misinterpreted by the market and that was
why we shot up,” Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd., said, referring to the dollar-yen exchange rate. “Deeper analysis indicated otherwise. It turned out to be a fine tuning rather than an extensive QE, and that brought the yen down again.”

Bold Action

Central bank Governor Haruhiko Kuroda, who acknowledged in a news conference that some of the adjustments were hard to understand, said Friday’s decision was “technical,” designed to make it easier for the BOJ to maintain the current policy and didn’t constitute additional easing. If the intention were to adjust policy, the action would be bold, he said.

Ten-year bond yields fell 2 1/2 basis points to 0.27 percent after declining to 0.265 percent.

The BOJ announced it would buy 1.5 trillion to 3 trillion yen of bonds maturing in more than 10 years in January, up from the 1.25 trillion to 2 trillion yen it plans to scoop up in December.

Kuroda said the BOJ still expected to meet its 2 percent inflation target around the six months through March 2017, but that the timing may change with oil prices.

“It’s not easing, but reinforcing easing,” said Yuji Saito, head of the foreign-exchange department at Credit Agricole SA in Tokyo. “It’s a measure to supplement the current QQE framework,” referring to the central bank’s policy of quantitative and qualitative easing.

— With assistance by Lukanyo Mnyanda

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