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Bank Of Japan Launches Fixed Rate Bond-Buying Plan

November 17, 2016
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To combat with inflation and promote growth, the Bank of Japan has announced that it will buy unlimited Japanese government bonds at a special fixed rate. The revamped monetary policy of the Bank of Japan allows for this decision to stabilize the yields.

As a result of this new purchase plan, the 10-year old benchmark bonds rose in value, reaching its highest in 9 months. The benchmark was up by 0.035%. The yields of Japanese government bonds have risen in accordance with the upward movement in the US Treasury notes. The reflationary policies as promised by the campaigns of Donald Trump has resulted in this upward movement.

The Bank of Japan is determined to guide the benchmark 10-year yields to reach around zero percent to boost the growth in the country. This policy is also likely to reduce inflation  in the country. The JGB futures were dealing with a low of 150.28 and after the buying announcement, it moved up t 150.82 and gradually settling at 150.70. After hitting its lowest, the JGB futures have enjoyed an increase in value due to the announcement. After nearly eight weeks, the JGB futures showed positive recovery signs.

The new policy framework is experimental at best so that the short term rates can stay negative while increasing the yields. The bond prices and yields always travel in opposite directions and this can cause difficulty in maintaining high yields. The rising yield in America has resulted in massive bond selloffs in several emerging markets.