MNI POLICY: BOJ Won't Act Unless JGB Yld Rise Hit Other Mkts

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will look past any possible rise in

super-long yields as the issuance of government bonds increases in coming

months, unless there is an adverse impact on financial markets, including

unwanted moves across the rest of the JGB curve, MNI understands.

     The BOJ is prepared to increase its purchases of government bonds, having

already revised its policy to state it can buy JGBs in unlimited amounts, but

officials feel bond markets have already largely discounted the increased

issuance volume.

     Although the BOJ will act as necessary to keep the overall yield curve at

low levels, it stands by its opinion that an excessive flattening of the yield

curve is undesirable, and a modest steepening of the curve is not a problem and

no additional action would be needed.

     --TREASURY YIELDS

     The central bank looked through the early June rise in longer-dated yields,

seeing the gains linked to rising U.S. Treasury yields, particularly as there

was no follow-through into 10-year yields or stock and forex prices. The BOJ is

focused on the speed of any moves rather than the actual levels.

     The yields on the 30- and 40-year bond yields rose to 0.525% and 0.560%,

respectively, on June 3, the highest level for both since May 2019. However, the

10-year sat at 0.02%, close to the middle of the BOJ's target range.

     The MOF announced in late May it will issue additional government bonds

worth JPY59.5 trillion to finance the government's second supplementary budget

in this fiscal year. Markets took the news will little impact, as it followed

the BOJ's announcement that it would buy government bonds to keep the yield

curve at low level without an upper limit.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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