Photographer: Kiyoshi Ota/Bloomberg

Japan 10-Year Yield Climbs Above 0.1% to Test BOJ’s Kuroda

Updated on
  • Weak 10-year auction spurs climb, Mitsubishi UFJ Kokusai says
  • The BOJ boosted purchase of 5-to-10 year bonds last Friday

Japan’s 10-year yield climbed to its highest in a year after the Bank of Japan failed to step in to halt an advance that puts its yield-curve control strategy under scrutiny.

The yield rose as much as 2.5 basis points to 0.115 percent, the highest since January 2016 when the central bank adopted a negative rate policy. The BOJ’s target for the maturity is around zero percent, with analysts expecting the central bank to let the yield fluctuate within a range of positive and negative 0.1 percent.

“The absence of a fixed-rate purchase operation from the central bank signals it doesn’t intend to cap the benchmark yield at 0.1 percent,” said Akio Kato, general manager of trading at Mitsubishi UFJ Kokusai Asset Management. The initial push for the higher yield came from the weaker 10-year auction outcome today, Kato said.

BOJ Governor Haruhiko Kuroda faces the dilemma of seeking to hold down borrowing costs, as accelerating inflation and an improving outlook for some of the world’s biggest economies push up global yields. Kuroda on Tuesday committed again to his yield-curve control strategy, introduced in September, while also pledging to cap bond purchases at 80 trillion yen ($711 billion) a year.

The 10-year bond sale Thursday drew a cut-off price of 100.07, compared with the 100.09 estimated by traders in a Bloomberg survey.

The Japanese central bank boosted purchases of bonds with 5-to-10 year maturity last Friday in an attempt to cap a steady climb in yields. However, it then wound back the proposed buying-target amount in February, spurring some analysts to question its communication strategy.

With the Federal Reserve expected to raise rates three times this year, Treasuries are pulling global yields higher, with Japan’s 40-year debt touching 1 percent last month for the first time since February. The BOJ offered to buy an unlimited amount of government bonds at a fixed rate in November when yields had climbed, though the operation failed to attract any bids.