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The Bank of Japan announced on Monday that it would buy smaller government bonds in its regular operations than on April 24, in a bid to reduce its presence in the Japanese bond market. Affected by the news, the dollar / yen dived more than 40 points to 155 in the short term.TigergatedragonNear .49.
The Bank of Japan said on Monday that it would buy 425 billion yen ($2.7 billion) of 5-10-year government bonds, up from 475.5 billion yen last month. This is the first time that purchases have been reduced since the end of December.
Mitsubishi UFJ Morgan Stanley Securities (Mitsubishi UFJ Morgan Stanley Securities Co) commented that it was surprising for the Bank of Japan to reduce its purchases of JGBs.
Bloomberg pointed out that the move could put upward pressure on Japanese bond yields, which could narrow the huge yield gap between Japan and the United States.TigergatedragonThis gap has weakened the yen exchange rate. Yields on benchmark 10-year government bonds rose immediately after the BoJ's decision, while the yen regained earlier losses.
The dollar / yen fell sharply from its intraday high of 155.95 after the surprise Japanese decision was announced, hitting as low as 155.50.
The yield on Japan's benchmark 10-year bond rose 3.5 basis points to 0.935 per cent on Monday, approaching the 10-year high of 0.97 per cent set in November.
Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley, said: "it is quite unexpected for the Bank of Japan to reduce its bond purchases, which may help to raise JGBs yields." It is hard not to see the reduction in bond purchases as a response to the recent devaluation of the yen. There could be more volatility in the bond market. "
Kazuo Ueda, governor of the Bank of Japan, said in March that the BoJ's new approach was to use short-term interest rates as the main policy tool, rather than using bond purchases or bonds held by the central bank.
A summary of the Bank of Japan's April policy meeting released last week showed that board members were closely watching the impact of a weak yen on inflation and thought it might accelerate the pace of interest rate increases, sparking speculation that the BoJ would raise interest rates ahead of schedule rather than delay it and cut back on bond purchases.
Shoki Omori, chief strategist at Mizuho Securities Co. In Tokyo, said: "the Bank of Japan seems to be under pressure from the government to take action to deal with the weakening yen and loose financial environment. However, the impact will be limited because investors have been prepared for it since the summary of the latest comments from the Bank of Japan's April policy meeting. "
At 11:18 Beijing time, the USDJPY is now trading at 155.79Universe 80.