TOKYO: Japan’s benchmark 10-year Japanese government bond yield surged to an eight-year high on Monday, spurring the Bank of Japan to conduct additional purchase operations to slow its rise.

The 10-year yield rose as much as 6 basis points (bps) to 0.605%, a level last seen in June 2014.

That handily exceeded the 0.5% official ceiling under the central bank’s yield curve control (YCC), but well back from the 1% upper tolerance limit signaled in a surprise policy tweak on Friday.

The BOJ conducted an additional 300 billion yen ($2.11 billion) purchase operation mid-morning, which saw the yield retreat as low as 0.59%, although it had returned to 0.605% as of 0545 GMT.

Policymakers “said they’d let the market decide the yield level with the BOJ as a kind of referee, but it’s ambiguous,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“Today the line was 60 bps, but tomorrow it might be 65 or 70. Volatility will be higher than before.”

The 10-year yield shot as high as 0.575% on Friday after the BOJ confusingly retained the 50 bps band around zero under YCC but announced it would conduct purchase operations at a yield of 1%, in a de facto raising of the ceiling.

The fact that the yield has not approached that 1% upper bound shows that investors have separated YCC adjustments from monetary policy based on the negative short-term interest rate, which is still some time away, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

Japan’s 10-year bond yield falls to one-month low

“In the medium term, I don’t think yields are going to spike up,” he said. “Markets are gradually testing the water, to see when and how the BOJ will react.”

A 10-year note auction on Tuesday will also be carefully watched to judge investor demand at current yield levels.