Yen Rises After BOJ Indicates Cut In Super-Long Bond Buying

(Bloomberg) -- The yen extended gains after the Bank of Japan indicated it will reduce monthly buying of super-long government bonds, in a reminder that it may still move to cut stimulus this year.

The BOJ bought ¥150 billion ($1.04 billion) of 10-to-25 year debt on Tuesday. That was the same amount as the previous purchase on Dec. 25, but given that the central bank has cut back monthly operations, this points to a decrease in buying for all of January.

Market rates suggest that traders still expect the BOJ to end its negative interest-rate policy later this year, though speculation of a move this month has largely tapered off. Traders are betting the central bank will avoid steps that would weigh on the economy in the aftermath of a powerful earthquake that hit Japan on Jan. 1.

“The decision to leave the purchase amount of 10-25 year bonds today indicates a quite aggressive reduction for the month,” said Keisuke Tsuruta, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “The central bank probably wants to cut the buying whenever it can.”  

The yen gained as much as 0.6% against the dollar to 143.42 after the BOJ operation announcement. Hedge funds in Tokyo sold the dollar for yen as the 10-year yield differential between the US and Japan narrowed, according to Asia-based currency traders.

Overnight-indexed swaps indicate the central bank will bring the negative-rate policy to an end in July, compared with April seen at the start of November.

“Expectations of the BOJ abolishing the negative-rate policy had fallen as much as they could,” said Yujiro Goto, head of Japan foreign-exchange strategy at Nomura Securities Co. in Tokyo. As such, the perceived reduction in the BOJ’s purchases of super-long bonds “may have revived” that a little, he said.

The BOJ also faces less pressure to buy bonds to prevent increases in borrowing costs after downward pressure on global debt yields kept a lid on Japanese rates. Japan’s benchmark 10-year yields last month touched their lowest level since July 28, the day the BOJ tweaked its yield-curve control for the first time in 2023. 

Data earlier Tuesday showed consumer price gains in Tokyo slowed for a second month in December, putting less pressure on the BOJ to move as early as this month. The central bank kept its monetary policy settings unchanged on Dec. 19 and provided no guidance on whether and when it will end negative rates. 

The BOJ initially indicated it would buy a minimum of ¥100 billion of the super-long bonds per operation, according to its quarterly plan. The amounts of purchases for other tenors were left unchanged on Tuesday.

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