Prospects of tighter U.S. monetary policy continue to drive up yields for Japan's super-long government bonds, putting to test the central bank's resolve to defend its key 10-year target.
The 10-year Japanese government bond yield moved back below an implicit 0.25% cap the Bank of Japan sets around its 0% target, after the central bank stepped in on Monday with a rare offer to buy an unlimited amount of the tenor at the level.
As such, the BOJ likely won't intervene to stem rises in yields with maturities other than the 10-year, unless the moves could threaten to push up the 10-year yield above 0.25%. The central bank also has the option of conducting an unscheduled bond-buying operation, or ramp up the amount of scheduled bond purchases released once every quarter.After years of heavy buying to pump money into the economy, the BOJ owns nearly half of outstanding JGBs. Its strong grip on the market allows it to control yields without ramping up buying much. Theoretically, the central bank can print as much money as it wants to keep buying JGBs to achieve its yield target.
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