BOJ Makes Sweeping Cuts to Bond Buying in a Bid to Steepen Curve

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(Bloomberg) — The Bank of made sweeping cuts to bond purchases a day after saying it wants a steeper curve and won’t allow a prolonged decline in yields.

Having kept its policy settings unchanged on Thursday, the central bank used its regular operation on Friday to lower buying across three maturity zones. That saw purchases drop a combined 50 billion yen ($463 million) from its previous operation. That’s the first time the central bank has cut purchases in all three segments at a single operation since it started the yield-curve control in 2016.

Friday’s move signals that the BOJ is stepping up its fight against lower yields after a global debt rally sent Japan’s benchmark 10-year rate to the brink of a record low of minus 0.3% earlier this month. The central bank wouldn’t allow yields to fall for a prolonged period, and it was desirable for the yield curve to steepen a bit, Governor said at a news conference Thursday.

“Reducing purchases right after Kuroda’s comments on the 10-year and super-long yields Thursday leaves a stronger impression that the BOJ is ready to act even if markets aren’t expecting it,” said Takenobu Nakashima, a senior rates strategist at Nomura Securities Co. in Tokyo. “This will leave some breathing room for the BOJ.”

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Japan’s 10-year yield rose in response to the BOJ’s action and was up two basis points for the day at minus 0.205% as of 10:50 a.m. in Tokyo. It slid to a three-year low of minus 0.295% on Sept. 4. The yen was 0.1% higher at 107.95 per dollar.

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Source: Investing.com