By Leika Kihara and Junko Fujita
TOKYO (Reuters) -Japan’s central bank offered to buy unlimited amounts of 10-year government bonds for the fourth straight day on Thursday as part of its aggressive efforts to defend its yield curve against the global tide of higher interest rates.
The BOJ had said on Monday that it would be repeating the offer for unlimited purchases every day until March 31, the final day of the first quarter.
Investors are now focused on whether the BOJ could increase the frequency and volume of bond purchases under a second-quarter market operation schedule, due to be released later on Thursday.
After falling to as low as 0.210% on Wednesday due to the Bank of Japan’s massive intervention, the yield on the benchmark 10-year Japanese government bond (JGB) yield crept up to 0.225% on Thursday.
The level was still below the 0.25% implicit cap the BOJ sets around its 0% target.
“The BOJ may increase bond buying somewhat in the second quarter, so markets make take a breather after testing the 0.25% cap,” said Chotaro Morita, head of Japan rates strategy at SMBC Nikko Securities.
While other major central banks have responded to mounting inflationary pressures by putting interest rates on an upward path, the super dovish BOJ is struggling to keep its yield curve control settings unchanged.
The yen has lost around 8% against the dollar this month due in large part to the widening interest rate differential.
The yen’s depreciation has exacerbated the rising cost of fuel and raw material imports due to the war in Ukraine.
Masato Kanda, vice finance minister for international affairs and Japan’s top currency diplomat, on Tuesday escalated his warning against sharp yen falls, saying Tokyo and Washington were closely communicating on currency issues.
Currency traders are on guard for any verbal signal that intervention to support the yen was imminent, usually delivered by policymakers cautioning against “one-sided” moves or stressing their resolve to take “decisive action”.
“Currency stability is important and sharp exchange-rate moves are undesirable,” Chief Cabinet Secretary Hirokazu Matsuno told reporters on Wednesday, repeating the government’s recent official line on the weak yen.
Prime Minister Fumio Kishida declined to comment on whether authorities would intervene to support the yen, but said there would be an appropriate response if needed.
Rintaro Tamaki, a former top currency diplomat, said the yen’s falls were not too far out of line with economic fundamentals as they were driven partly by the central bank’s ultra-low interest rate policy.
Factory output rose 0.1% in February from the previous month, data showed on Thursday, posting its first rise in three months but smaller than forecast.
(Reporting by Leika Kihara and Junko Fujita, Additional reporting by Kantaro Komiya, Daniel Leussink and Tetsushi KajimotoEditing by Shri Navaratnam & Simon Cameron-Moore)
