Japan's Central Bank Steps In as Yields Rise 🌸

What's the story? 💫

Japan's central bank, the Bank of Japan (BoJ), made unscheduled purchases of government debt as yields on benchmark bonds reached their highest level in a decade. The BoJ offered to buy ¥675bn ($5.7bn) worth of Japanese government bonds with maturities between five and ten years. This unexpected move exceeded market expectations and reflects the pressure on the BoJ to control yields on the 10-year Japanese government bond while also preventing a slide in the yen.

What does this mean? 💡

Yields on the 10-year Japanese government bond increased to 0.783%, indicating market speculation that authorities are planning to exit 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 Japanese government bonds also rose to multiyear highs. The rising yields reflect the growing difficulty for the BoJ to combat the current direction of travel on yields.

Why should I care? 🤔

The rise in Japanese government bond yields coincided with a sell-off in US Treasuries, with yields reaching 16-year highs. This reflects market expectations that interest rates will remain higher for longer in the US. The turmoil in bond markets has also affected Asian equities, with Japan's Topix declining 1.9%, Hong Kong's Hang Seng index falling 1%, and South Korea's Kospi shedding 2.2%. The situation highlights the interconnectedness of global markets and the potential impact of rising yields on various asset classes.