BOJ ready to increase bond buying if yields jump, says governor Ueda

Bank of Japan Governor Kazuo Ueda said on Friday the central bank stands ready to increase government bond buying if long-term interest rates rise sharply.

Ueda said the BOJ’s basic stance was to allow market forces to determine long-term interest rate levels, saying he would not comment on where yields would eventually converge.

“We expect long-term interest rates to fluctuate to some extent,” reflecting changing market views on Japan’s economic and price outlook, Ueda told parliament when asked by an opposition lawmaker about recent rises in bond yields.

“But when markets make abnormal moves and lead to a sharp rise in yields, we are ready to respond nimbly to stabilise markets,” such as by increasing bond purchases, he said.

Japanese government bond (JGB) yields have risen steadily as investors price in the chance that the BOJ could raise interest rates, currently at 0.5%, more aggressively than expected.

Ueda said that the recent rises in long-term bond yields in principle reflect a modest economic recovery and a rising price trend.

The BOJ ended a decade-long massive stimulus last year, including a policy capping 10-year yields around zero through aggressive bond purchases, on the view that Japan was on the cusp of durably achieving its inflation target of 2%.

The central bank also began tapering its huge bond buying under a plan laid out in July to halve monthly purchases to 3 trillion yen ($20 billion) by March 2026. In the plan, the bank said it stood ready to ramp up bond buying in exceptional cases to deal with any abrupt rises in yields.

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Ueda said he could not say in advance when the BOJ would conduct emergency bond market operations, saying only the central bank would watch the market carefully for any emerging signs of destabilisation.

“If the price outlook continues to improve, more interest rate hikes would come into sight,” Ueda said. “We’ll bear in mind that there might be some unpredictable effects of higher interest rates on the economy.”

($1 = 150.2700 yen)