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MNI INSIGHT: BOJ Ready To Boost JGB Buys As Borrowing Jumps

MNI (Tokyo)

Japan's central bank has the ability to respond forcefully to rapid changes in bond yields.

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The Bank of Japan stands ready to buy additional government bonds to ensure the yield curve stays at low levels, MNI understands, as the newly-elected Liberal Democratic Party-led coalition helmed by Prime Minister Fumio Kishida moves ahead with a massive stimulus package.

The government reportedly plans to issue an additional JPY22.1 trillion of JGBs in 2022, a roughly 50% increase from this year's JPY45 trillion net new issuance.

But regardless of the scale of JGB issuance, the BOJ will protect its yield curve control policy, keeping the 10-year bond between -0.25% to +0.25%.

The government on Nov. 19 approved an economic stimulus package worth a record JPY55.7 trillion on a fiscal expenditure basis and it will likely approve a supplementary budget for this fiscal year on Friday. Issuance plans for the fiscal year starting April 1 will be available in late December.


While the BOC can tolerate changes in JGB pricing in response to economic developments and inflation and market trends, it would not accept a sharp rise in yields. MNI has already reported that BOJ officials are worried about the risk of a bond market selloff if the Federal Reserve tightens policy sooner or more sharply than expected in response to inflationary fears. (see: MNI INSIGHT: BOJ Sees Risk Of Volatility If Fed Hikes Fast)

If necessary, the BOJ could buy a potentially unlimited amount of JGBs in the open market, but its response would depend on the speed and magnitude of market moves in yields or the exchange rate.