The Bank of Japan (BOJ) took a drastic step in a bid to defend its yield target on Monday by making a surprise offer to buy unlimited government bonds.
The central bank's move follows a surge in Japanese 10 -year government bond (JGB) yields to as high as 0.25% in early trade today, the highest level since January 2016.
This is the second time such action has been taken by the central bank this year. The first time it offers to make unlimited JGB purchases is on February 10th.
Interest rates have risen in most countries amid expectations that U.S. and European central banks will tighten monetary policy faster than expected to combat rising inflation.
This has put pressure on the BOJ to act on its interest rates as well even though the country’s economy is still struggling with the Covid-19 pandemic.
Even so, BOJ Governor Haruhiko Kuroda has repeatedly said that the central bank will keep interest rates at record lows, given the still gloomy economic recovery and inflation remaining well below the 2%target.
The BOJ’s current guidance is to allow the 10 -year yield to move flexibly around the 0% target as long as it remains below the upper limit of 0.25%.
