The Bank of Japan on Wednesday amended rules for a funds-supply market operation to make it usable as a tool for preventing long-term interest rates rising too much, in a show of resolve to maintain its yield curve control (YCC) policy for the time being.
Under the amended rules, the central bank can make both fixed-rate and variable-rate loans of up to 10 years' duration against collateral to financial institutions.
"The BOJ shall determine the interest rate of each loan in order to encourage the formation of a yield curve that is consistent with the guideline for market operations, taking into account market prices of Japanese government bonds for each maturity," the central bank said in a statement. The BOJ has struggled to defend a 0.5% cap on the 10-year bond yield set under YCC, as investors have sold off bonds in anticipation of a tweak to its ultra-loose monetary policy.decisionTakafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities, said the amendment would allow the BOJ to offer five-year loans with the funds-supply operation, a move that would help push down five-year swap rates.
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