BOJ’s Reduced Bond Buying Sparks Yield Surge, Hints at Quantitative Tightening

Japanese government bond yields surged to multi-year highs on Monday following the Bank of Japan’s (BOJ) decision to offer less in its regular bond purchasing operation. The two-year yield increased by one basis point (bp) to reach 0.325%, marking its highest level since June 2013. The five-year yield also rose by 2.5 bps, reaching a level not witnessed since April 2011. Moreover, the ten-year yield leapt by 3.5 bps, reaching a height not seen since November 2021. This move by the BOJ, which involved reducing the amount of bonds purchased to 425 billion yen ($2.73bn) from 475 billion yen at the previous operation on April 24, marks its first decrease in bond purchasing offers since late December. Such a decision follows a series of increasingly hawkish signals from the BOJ in recent days, including a report from the April policy meeting that disclosed certain board members believed interest rate increases might occur at a pace quicker than anticipated by the market. Governor Kazuo Ueda also hinted at the possibility of multiple rate hikes in the future. Senior economist Norihiro Yamaguchi from Oxford Economics in Tokyo asserts that the BOJ’s actions could indicate its intention to implement quantitative tightening (QT), or the reduction of bond holdings following several years of substantial purchases. However, Yamaguchi also predicts that the BOJ will refrain from planning QT before raising interest rates again, which he anticipates will take place in September. The BOJ lifted rates in March for the first time since 2007. The thirty-year yield rose by 1.5 bps, reaching a level not seen since February 2013, while the twenty-year yield also rose by 1.5 bps, hitting its highest level since November 2021. Benchmark ten-year JGB futures decreased by 0.34 yen to settle at 143.92. ($1 = 155.7800 yen) (Reporting by Kevin Buckland; Editing by Subhranshu Sahu)