MNI INSIGHT: BOJ Ready To Defend Yield Curve On Any Fed Moves

Bank of Japan officials are ready to fight any surges in 10-year bond yields through fixed-rate purchase operations for consecutive days if the U.S. Fed tapering and expected rate hikes bring on financial market pressures this year, MNI understands.

Even if the U.S. 10-year bond yield surges, the rise in the 10-year JGB yield will be limited as the BOJ has pledged to trade around plus and minus 0.25% under its yield curve control policy.

The BOJ is wary that a U.S. Fed tightening will add stress for corporate financing in Japan. At the same time, a fresh set of curbs because of the Omicron spread could disrupt the issuance of commercial paper and corporate bonds by major firms that would otherwise be manageable.

“If the economic situation changes significantly due to the course of the pandemic, it may become necessary for the BOJ to make policy responses that go beyond facilitating corporate financing," one BOJ board member said at the December meeting. The BOJ holds its January meeting next week, see: MNI: STATE OF PLAY: BOJ Board To Lift Growth, Inflation Views.

BOJ watchers have also expressed concern that the end of Fed tapering and possible need for rapid hikes in rates could roil markets this year by increasing upward pressure on U.S. Treasury bond yields and cause a funds outflow from emerging economies, MNI INSIGHT: BOJ Wary On Investments Abroad, Loans At Home.