The Bank of Japan has been charging interest on bank reserves from January, which is pushing the government bonds yield below zero, has its limits. The BoJ put around a fifth of the 645 billion yen ($5.7 billion) of debt for sale at a money market operation on Monday, was left unsubscribed as the BOJ shunned commercial paper with yields of -0.647 pct or less.
“The BOJ has shown its stance that while its operations aim to lower yields, it will pay heed to market levels and won’t take rates that considerably deviate from reality,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co.
“The BOJ doesn’t want pricing that’s too far from where markets are.” he further added
Meanwhile, the brokerage company started to speculate that the central bank was seeking to avoid a bubble in prices or just to limit the losses it suffers in asset-buying stimulus as the central bank was unable to achieve its desired target. The BOJ has been increasing its targets for CP purchases this year and reducing buying of bonds (at about 20 bps below the average accepted level) as investors become more reluctant to sell longer-dated debt with positive yields.
“The central bank is highly unlikely to buy commercial paper with yields at -1 or -2 pct and the BOJ will probably incur a significant loss from Monday’s purchase of 530.4 billion yen in CP with an average yield of -0.428 pct and a mean maturity of about 1-month “said Yoshihito Yasuda, a researcher at Totan Research in Tokyo.
The BOJ’s first offer in 5-years to buy government debt under repurchase agreements garnered almost 385 billion yen in accepted bids on March 18, less than the 500 billion yen target. It rejected bids with yields of minus 0.3 pct or less, a level about 20 bps below the average accepted rate.
Lastly, The benchmark 10-year JGB yield edged down half a basis point to -0.095 pct, inching back toward a record low of - 0.135 pct hit earlier this month. In the super long zone, the 20-year JGB yield slipped 1.5 bps to 0.395 pct.
