By Junko Fujita
TOKYO (Reuters) -The Bank of Japan conducted emergency bond buying operations for a second straight day on Friday, as the 20-year government bond yield rose to a new high in a further challenge to the central bank’s resolve to defend its ultra-easy policy stance.
In its latest move to curb elevated yields, the BOJ offered to buy 100 billion yen ($664.98 million) of bonds with maturities between 10 and 25 years.
The BOJ conducted a similar operation on Thursday, only to see yields on some notes rising to multi-year highs.
“The Bank of Japan will have to repeat emergency operations to contain a sharp rise in yields on super-long JGBs,” said Ataru Okumura, strategist at SMBC Nikko Securities.
“But upward pressure on the 10-year bond yields is getting stronger, because not just super-long yields, but yields on shorter ended notes are rising.”
Japan’s central bank remains an outlier among a global wave of monetary policy tightening to combat soaring inflation, as it focuses on underpinning a fragile economy.
The divergence in policy and widening yield gap between the U.S. and Japanese economies have driven the yen’s sharp declines against the dollar this year, with the yen tumbling to a fresh 32-year low beyond 150 yen to the dollar on Thursday.
The U.S. benchmark 10-year Treasury yield hit fresh 14-year peaks on Thursday.
The BOJ is expected to keep its ultra-low policy unchanged at its policy meeting next week. But speculation that the central bank may have to alter its policy soon has driven recent bond sell-offs, strategists said.
After the BOJ’s announcement on Friday, the yield on 20-year bonds jumped 4.5 basis points (bps) to as high as 1.205%, its highest since July 2015, before retreating to 1.195%.
The 30-year JGB yield rose 3 bps to 1.550%, its highest since June 2015.
The two-year JGB yield rose 1.5 bps to -0.010%, its highest since January 2016.
Yields on the benchmark 10-year yields were flat at 0.25% at the top of the ceiling of BOJ’s policy band, having breached that level for two straight sessions this week despite the bank’s daily massive bond buying.
Yields on nine-year bonds, which are outside the BOJ’s target window, have risen to 0.337%.
Under its yield-curve control policy, the BOJ pledges to cap the 10-year JGB yield around 0% to keep borrowing costs low and stimulate the economy.
The central bank also increased the amounts of bonds it would buy at its planned operations, offering to buy 500 billion yen of bonds with one- to three-year maturity, and 575 billion yen of bonds with 3- to 5-year maturity.
Additionally, the bank would offer to buy 650 billion yen of 5- to 10-year bonds, up from planned 550 billion yen.
($1 = 150.3800 yen)
(Reporting by Junko Fujita; Editing by Christian Schmollinger, Shri Navaratnam and Kim Coghill)