Business / Financial Markets

BOJ acts to curb interest rate spikes following Trump victory

Kyodo

The Bank of Japan on Thursday announced its first fixed-rate buying operation since the policy’s introduction in September, in a bid to curb surges in interest rates following the victory of Republican Donald Trump in the U.S. presidential race.

The BOJ said it would buy an unlimited amount of Japanese government bonds with maturities of one to three years and those with maturities of three to five years.

The central bank decided to carry out the operation “taking into account spikes in short-term and mid-term interest rates,” a BOJ official said, but no financial institutions offered to sell Japanese government bonds this time.

Interest rates in Japan have been on an upward trend in line with increases in U.S. Treasury yields, amid growing speculation that the administration of the president-elect may boost government spending, causing higher inflation in the United States.

The yield on the bellwether 10-year Japanese government bond briefly hit a nine-month high of 0.035 percent Wednesday.

At its Policy Board meeting in September, the BOJ decided to shift its policy target to the government-bond yield curve instead of quantitative easing, aiming to prepare for a long-term battle to realize its 2 percent inflation goal.

Since then, the BOJ has modified the framework of its bond-buying program to keep the yield of the 10-year Japanese government debt at around zero percent, while leaving unchanged the negative interest rate of minus 0.1 percent on a portion of reserve funds held by private banks at the BOJ.

Under the new policy framework, the fixed-rate buying operation was introduced to prevent interest rates from surging.

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