Japan 10 year bond yield had crossed .75. It broke high of 2014 which created a sense of urgency in Bank of Japan (BOJ). They announced an outright purchase of Japanese government bond.
The Bank of Japan’s (BoJ) bond-buying program has significant implications for the Japanese Yen and the USD-JPY currency pair. The Japanese Yen (JPY) has weakened against a basket of major currencies in recent weeks, despite its traditional status as a “haven currency” in times of global crisis or market volatility. This is largely due to Japan’s divergent monetary policy.
The BoJ has been dovish, maintaining low rates and buying bonds to meet its 0.25% yield curve control (YCC) target. This contrasts with the US Federal Reserve’s hawkish monetary policy, which has boosted the US dollar. As a result, the divergence between the Yen and the dollar has been particularly pronounced.
The BoJ’s bond-buying actions aim to curb a slump in ten-year Japanese government bonds (JGBs) to keep within its YCC target. However, these actions have led to a plunge in the Yen, which has inflated the cost of raw material imports.
In terms of the USD-JPY currency pair, when yields on Treasury bonds rise, the Yen tends to weaken relative to the dollar. This is because people can borrow Yen more cheaply to buy higher-yielding dollars. Thus, BoJ’s bond-buying program indirectly affects the USD-JPY currency pair by influencing bond yields and interest rates.