TOKYO: The Bank of Japan on Thursday offered to pump massive funds into markets after long-term interest rates crept up to a two-month high, signalling its resolve to keep borrowing costs low to support a fragile economic recovery.
Under the offer, the central bank said it would pump 2 trillion yen ($17.22 billion) into markets through temporary government bond purchases between Jan. 7-14.
The announcement came after the benchmark 10-year Japanese government bond (JGB) yield hit 0.105% on Thursday, marking the highest level since Nov. 1 last year, tracking a steady rise in US Treasury yields.
While the BOJ has tools available to stem further gains in yields, a sustained rise in US interest rates could challenge the central bank's resolve to defend its rate target.
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Under a policy dubbed yield curve control (YCC), the BOJ pledges to guide short-term interest rates at -0.1% and 10-year JGB yields around 0% via aggressive money printing.
In a review of its policy tools in March, the BOJ said it would allow the 10-year yield to move up and down by 0.25% around its 0% target.
With inflation well below the BOJ's 2% target, Governor Haruhiko Kuroda has repeatedly stressed the bank's readiness to maintain ultra-low rates even as its major counterparts like the US Federal Reserve withdraw crisis-mode stimulus support and eye rate hikes.
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