The Bank of Japan announced on Thursday that it would purchase an unlimited number of 10-year Japanese government bonds (JGB) at 0.25%, showing its determination to prevent rising global yields from driving up domestic borrowing costs too much.
The offer will be made on Monday, according to a statement from the central bank.
The announcement came after the benchmark 10-year JGB yield jumped to 0.230% on Thursday, the highest since 2016 and near to the implicit 0.25% cap set by the BoJ around its 0% target.
"The BoJ sent a strong message to markets about its determination to curb any increase in yield above 0.25%," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
"A lot depends on how the US bond market moves," he said, "but if the 10-year JGB yield remains under strong upward pressure, the BoJ may wind up carrying out more operations like this."
The BoJ has pledged to cap the 10-year JGB yield at about 0% under its yield curve control policy in order to keep borrowing costs low and stimulate the economy, which has lagged many of its peers in its recovery from a pandemic-induced slump.
However, persistently high inflation in the West and increased hawkishness from other major central banks has fuelled speculation that the BoJ would need to reduce its ultra-loose monetary policy soon, pushing JGB yields to multi-year highs.
The BoJ clarified in a policy review conducted in March last year that it will allow the 10-year JGB yield to move 25 basis points on either size of zero. It was intended to revive a market that had been rendered dormant by the BoJ's massive presence.