Bank of Japan officials are increasingly concerned the nation's bond market is failing to reflect emerging inflation, raising the risk of a sudden surge in yields, sources said.
Japan's benchmark 10-year government bonds yield 0.615 percent, little changed from March 2013, even after a jump in the consumer price inflation rate of almost 2.5 points since then. The yields have been held down by the BOJ's own purchases, part of the unprecedented monetary stimulus unleashed by Gov. Haruhiko Kuroda a year ago.
While Kuroda has said easing should put downward pressure on market rates, that doesn't mean the BOJ has a target for yields, said the sources, who asked not to be named as the talks were private.