The Bank of Japan (BOJ) yesterday held off taking further action to stabilise bond yields, in what was a show of confidence by the central bank that Japanese bond prices were stabilising. But the reaction in other markets to the lack of any new BOJ move was an indication of how sensitive they have become to monetary moves globally.

On the heels of the decision by the Policy Board of the BOJ to stand pat on monetary policy, share prices in Britain tumbled on what analysts said was disappointment over the lack of new monetary stimulus in Japan. Asian shares, meanwhile, sagged to a new 2013 low on continued uncertainty over US bond‐buying and concerns over China's growth.

According to sources close to the central bank, the BOJ held off taking further steps to curb possible spikes in bond yields ‐ the move looked for by many market players  ‐  because it judged that the market had begun to stabilise and that the recent turbulence did not pose a major risk to Japan's recovery prospects.

But this apparently failed to convince markets in Japan and beyond: the yen shot up to 96.48 to the US dollar at one point; the Nikkei 225 stock average fell by 1.45 per cent, and Nikkei futures by 3 per cent on expectation of further falls in Tokyo equities.

At a news conference at the end of the Policy Board's two‐day meeting and after Tokyo markets had closed, Bank ofJapan governor Haruhiko Kuroda said the BOJ will consider extending the duration of
its fixed‐rate market operation in future if necessary to stem possible spikes in bond yields. "The BOJ is buying a large amount of government debt, which is lowering risk premiums and will become more effective over time as our debt purchases increase."

Source: AmFraser