At the moment when the United States is closest to hyperinflation in 40 years, the Fed is going to raise interest rates regardless of the consequences of capital markets – and judging by today's staggering 2-year 30 basis point movement, what we are seeing is an epic carnage...
Japan's debt levels far exceed those of the rest of the world, but it is reluctant to take any such gambles. On Thursday, the Bank of Japan said it would buy unlimited 10-year government bonds at a rate of 0.25 percent to defend the BoJ's Yield Curve Control cap. This underscores its determination to prevent rising global yields from pushing domestic borrowing costs too high.
The Bank of Japan said in a statement posted on its website after the Closure of the Japanese Treasury Bond Market that if the U.S. bond crisis spreads to Japan, the Bank of Japan will have to bail out the bond market in advance.
On Thursday, the yield on the 10-year Japanese treasury rose to 0.23 percent, the highest level since 2016 and close to the 0.25 percent cap set by the Bank of Japan. After the news was announced, the yield on the 10-year Treasury bond fell briefly, and finally fell to 0.22%.
High inflation in the West and the increasingly hawkish attitude of other major central banks such as the Federal Reserve have prompted bets that the BoJ needs to scale back its ultra-accommodative monetary policy as soon as possible, pushing Japanese Treasury yields to multi-year highs. But while inflation in Japan is slowly rising, it is still well below the Bank of Japan's 2 percent target, and the economy is recovering from a recession triggered by a pandemic lagging behind many of its peers. Wages, in particular, are not growing as fast as in other countries.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said: "The Bank of Japan is sending a strong signal to the market that it is determined to contain any rise in yields above 0.25%."
By announcing plans a few days in advance, the BoJ is trying to curb sell-offs (and short selling), prevent players from testing the 0.25 percent line, and prevent any breach of that level in advance without buying Japanese government bonds, said Takhidekiuchi, a former central bank board member.
Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, said the BoJ may have made the announcement to prevent a spike in yields next week after Japan would take a three-day holiday starting Friday.
"It is uncertain whether Japanese Treasury yields will fall back, as fears of global inflation risks and higher US Treasury yields have pushed Japanese Treasury yields higher in the near future." She said.
Valentin Marinov, strategist at Credit Agricole, said the BoJ's offer to buy unlimited 10-year treasuries was part of its efforts to restore credibility and control over the yield curve: "The BoJ is trying to restore credibility to its yield curve control policy framework. The framework has recently come under pressure after the fall in U.S. Treasury prices. He added, "The BoJ is clearly not worried about runaway inflation in Japan, on the contrary, it seems to be trying to maintain favorable financial conditions." ”
Under its yield curve control policy, the Bank of Japan has pledged to keep the yield on 10-year Japanese government bonds at around 0% to keep borrowing costs low and stimulate the economy. During a policy review conducted last March, the BoJ clarified that it would allow the 10-year Japanese treasury yield to float 25 basis points between two basis points. The huge influence of the Bank of Japan has left the market dormant, and the days pass without a single transaction.