The Bank of Japan's all-conflicting bid-ask operations sparked a yen depreciation abroad (from Tetsuo Inoue's "Market Trends")

Trend 161: The Japanese central bank’s price-quote operations, full of contradictions, have led to a weaker yen abroad

Yesterday the Bank of Japan finally activated the “price-quote operations.” This was despite the fact that on the previous day, the 16th, it had held back on increasing purchases in the usual yield-based bidding operation.

The true intent behind this remains completely difficult to understand. It stems from the inconsistency with the interview article in the Nikkei on 10/26 with Shimizu, head of the Financial Markets Department, which stated: “If interest rates rise sharply, we would first increase the amount of purchases of government bonds. If that still does not guide expectations effectively, the Bank of Japan will implement price-quote operations that set the yield.” The article’s headline was, after all, “Bank of Japan’s interest-rate management is going smoothly.”

As if testing the market’s reaction, this move has become a major topic overseas.
The level of yesterday’s price-quote operation was: 2-year: ▼0.090%, 5-year: ▼0.040%. This serves as a benchmark or one form of judgment. Compared with the day before, the day before the policy meeting on 9/21, when the 2-year was ▼0.270% and the 5-year ▼0.200%, the 2-year yield rose by only 18 basis points, and the 5-year yield by 16 basis points. Showing a stance that would not allow even such a small uptick in interest rates to go unchecked ultimately leads to the speculation that the authorities are not just dealing with current rates or interest on deposits, but are aiming to guide yields up to the five-year maturity into negative territory—

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