The Zhitong Finance App learned that the size of government bonds purchased by the Bank of Japan during the central bank's routine operations on Monday was lower than the size of government bonds purchased on April 24 to seek to reduce its pricing influence in the Japanese bond market. This move may bring obvious upward momentum to Japanese treasury bond yields, thereby narrowing the huge treasury bond yield gap between Japan and the US, and ultimately boosting the yen. This treasury bond yield gap can be described as a core factor in the continuous collapse of the yen exchange rate. After the Bank of Japan announced the above decision, the yield on Japan's 10-year treasury bonds rose immediately, while the yen recovered its earlier losses.

The Bank of Japan said it will buy 425 billion yen (about 2.7 billion US dollars) of 5-year treasury bonds, while last month the central bank purchased up to 475.5 billion yen of treasury bonds. That's still within the plan for this quarter. However, this is the first time since the end of December last year that the size of purchases has been reduced.

Takahiro Otsuka, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said: “The Bank of Japan's reduction in the size of purchases is quite surprising, and this may help increase yields. It's hard not to see this rate cut as a policy response to the recent depreciation of the yen. The bond market is likely to fluctuate more drastically.”

Bank of Japan Governor Kazuo Ueda said in March that the Bank of Japan's new approach uses short-term policy interest rates as the main policy tool rather than using bond purchase operations or bonds held by the central bank.

According to the summary of the April policy meeting released by the Bank of Japan last week, members of the Bank of Japan's monetary policy committee are closely monitoring the impact of the accelerated weakening of the yen on Japan's inflation rate and believe that the pace of interest rate hikes may be accelerated as a result. This has sparked speculation among market participants that the Bank of Japan will raise interest rates early rather than postpone interest rate hikes and reduce the scale of bond purchases. The minutes of the meeting also pointed out that the weak yen may be the main factor driving up prices, drawing the central bank's attention.

At the end of April, the USD/JPY surged above the 160 yen mark, which meant that the yen depreciated to a level not seen in 34 years. On the data side, wage growth in Japan slowed in March, challenging the Bank of Japan's prediction of a “virtuous cycle” of rising wages and prices. Meanwhile, despite Japan's fiscal authorities continuing to warn the market against extreme currency fluctuations, the yen fell nearly 2% last week. In the past two weeks, the yen has rebounded 5.2% from low to high due to suspected government intervention twice, and Bank of Japan data shows that it spent nearly $60 billion defending the currency.

Shoki Omori, chief strategist at Tokyo Mizuho Securities, said, “The Bank of Japan appears to be under pressure from government peers to take action to deal with the depreciation of the yen and the loose financial environment. However, this impact will likely be limited, as investors have been prepared for this since the Bank of Japan's April policy meeting's latest summary of policy opinions was published.”

After the announcement of the Bank of Japan's news, the US dollar fell downward against the yen, which meant that the yen had recovered its previous 0.1% depreciation and stabilized at around 155.85 yen, but judging from various technical indicators, the depreciation trend has not abated significantly. Meanwhile, the yield on Japan's 10-year treasury bonds, which is the benchmark for Japan's risk-free yield, rose 3.5 basis points to 0.935% on Monday, approaching the 10-year high of about 0.97% set in November last year.