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Bank of Japan buys $12.7bn of bonds as yields hit highest in a decade

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Japan’s central bank made unscheduled purchases of government debt on Wednesday as yields on benchmark bonds hit their highest mark in a decade, while a global market sell-off also continued to drive US Treasury yields to 16-year highs.

The Bank of Japan offered to buy ¥675bn worth of Japanese government bonds at maturities between five and 10 years. The BoJ’s offer was part of a total ¥1.9tn ($12.7bn) of JGB purchases across various maturities on Wednesday. The unscheduled part of the offer greatly exceeded market expectations, traders said.

The BoJ is under increasing pressure to maintain its policy of controlling yields on the 10-year JGB while also limiting a slide in the yen, which briefly weakened below ¥150 to the dollar on Tuesday for the first time in almost a year.

Despite the bank’s offer, however, yields on the 10-year JGB edged higher to 0.783 per cent, as markets continue to bet that authorities are planning an exit from the negative interest rate regime that began in 2016. Japan is the last country in the world to maintain negative interest rates.

Yields on both five-year and 20-year JGBs also rose to multiyear highs on Wednesday, reflecting what traders said was a growing inability of the BoJ to fight the now prevailing direction of travel on yields.

After falling below ¥150 on Tuesday, the yen abruptly bounced higher to ¥147.3, prompting speculation that Japanese authorities might have intervened. Foreign exchange analysts and dealers in Tokyo, however, mostly agreed that direct currency intervention had not taken place.

Japanese finance minister Shunichi Suzuki told reporters he would not comment on whether Tokyo intervened in the exchange rate market. “We’re ready to take necessary action against excess volatility, without ruling out any options,” he said.

The yen weakened again on Wednesday morning, reaching ¥149.29 by lunch time.

The rise in Japanese government bond yields coincided with a continued sell-off in US Treasuries, whose yields reached fresh 16-year highs on Wednesday as markets bet that interest rates will remain higher for longer.

The yield on the US 10-year note added as much as 0.06 percentage points to a high of 4.85 per cent, before paring gains to be up 0.05 percentage points at 4.84 per cent. Yields on the 30-year US Treasury rose 0.05 percentage points to 4.97 per cent.

Strong economic data in the US has encouraged bets that the Federal Reserve will keep interest rates “higher for longer”. The turmoil in bond markets also damped sentiment in Asian equities, with Japan’s Topix declining 1.9 per cent, Hong Kong’s Hang Seng index falling 1 per cent and South Korea’s Kospi shedding 2.2 per cent.

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