A "market curious" corner where you can understand the movements of financial markets.

On February 14, which was Valentine's Day, the market was paying close attention to the BOJ's actions.

Its name is "Limit Operation" (Sashine).

It is a powerful measure that the Bank of Japan points to interest rates and blocks interest rate rises.

What kind of effect and influence did it have?

(Hiroshi Nakazawa, Reporter, Ministry of Economic Affairs)

On February 14th (Monday), I was interviewing the market from the morning at the "Kabuto Club", which is a reporter's station on the Tokyo Stock Exchange.



While interviewing the stock price, which has fallen sharply due to the situation in Ukraine, I was paying close attention to the movement of interest rates.

Because on that day, the Bank of Japan announced that it would carry out a limit operation.

The limit operation is a powerful measure to buy unlimited government bonds at the yield specified by the Bank of Japan in order to curb the rise in long-term interest rates.



The Bank of Japan is currently adjusting the interest rate on 10-year government bonds to remain at around 0%, but has stated that the fluctuation range will be around "plus or minus 0.25%."

The aim of the limit operation is to block so that it does not exceed this upper limit of 0.25%.



In the first place, it was unusual from the timing of this measure and announcement.

Announced on the evening of February 10th (Thursday) before the holidays.



Market officials were surprised, saying, "It was a surprise announcement in advance, not on the day, and in the evening."

This is because the BOJ's operation announcements were usually made twice at 10:10 am and 2:00 pm on the day of the event.



Why did you announce it at an unusual timing?



A Bank of Japan official said, "We have identified the situation in Ukraine and the CPI = consumer price index that will be announced in the United States on the night of the 10th of Japan time."



The United States is now suffering from inflation as prices rise sharply.



Under these circumstances, if the consumer price index announced is higher than the market expectation, the US long-term interest rate will skyrocket due to the perception that the Fed = Federal Reserve Board will raise interest rates at a faster pace, which is Japan. Could bring about a rise in long-term interest rates.

In fact, on the evening of the 10th, Japan's long-term interest rates rose to 0.23%, approaching the upper limit of fluctuations.



On the other hand, if the situation in Ukraine worsened, government bonds, which are considered to be relatively safe assets, could be bought, and interest rates could drop significantly.



The Bank of Japan's decision was to show the market a strong intention to stop rising interest rates by announcing a limit operation on the 10th before the holidays.



Another Bank of Japan official said, "It was a judgment as a result of worrying to the last minute and assessing the situation."



The Bank of Japan's Governor Kuroda also told the House of Representatives Budget Committee on the 16th that "it was an unusual situation where (Japan's long-term interest rates) rose a little more rapidly under the influence of rising long-term interest rates overseas." ..



Perhaps there was a surprise notice effect, there was concern about the situation in Ukraine, and there was a move to buy government bonds, and the long-term interest rate on the 14th temporarily dropped to 0.20%.

As the market yield was lower than the BOJ's 0.25%, that is, the price of government bonds remained high, there was no move to accept the BOJ's purchases.




The "limit operation" is a sign of the BOJ's resolute stance, but what kind of impact will it have on the market in the future?



The first is the impact on foreign exchange.

Overseas, the situation is now a “rush rate hike”.



The US is expected to raise rates at the Fed's March meeting.

Moreover, there is growing observation that the rate hike will be 0.5% at once instead of the usual 0.25%.



The Bank of England in the United Kingdom raised its policy rate on February 3, following December last year, and the central bank's governor, Christine Lagarde, who was cautious about raising rates, has changed to not rule out the rate hike later this year.



Under these circumstances, when the Bank of Japan blocks the long-term interest rate to 0.25% at the limit price, the market recognizes that the interest rate will not rise any more, and is conscious of widening the interest rate differential, selling the yen with a low interest rate and selling the dollar. It has been pointed out that the pressure to buy and depreciate the yen may increase.



A market official said, "The depreciation of the yen amid soaring crude oil prices will lead to a further rise in import prices, increasing the risk of increasing the burden on households and importing companies."

Another impact is the difficulty of reading messages from the market.

It has been pointed out that distorted interest rate formation distorts the bond market, which is the thermometer of the economy, and makes it difficult to read the actual state of the economy from interest rates.



Interest rates are also said to be a more accurate economic thermometer than stock prices and exchange rates.



Even if interest rates on 10-year bonds could be held down, for example, in the bond market on February 17, the yield on medium-term 5-year bonds was 0.06%, the highest level in 6 years and 4 months since October 2015. have become.

The ultra-long-term 40-year bond also yielded 1.03%, which was in the 1% range for the first time in 3 years and 3 months since November 2018.



Japanese interest rate graph that slept flat for a long time.

Various factors are intertwined and are beginning to swing.



How will the interest rate path change with the BOJ's "limit operation"?



It seems that the days of nervousness will continue so as not to misread the small fluctuations behind it.

Statistics on consumer sentiment will be released one after another in the United States.

It will be interesting to see how consumers' willingness to buy is changing as record inflation continues.



Besides, I cannot take my eyes off the situation in Ukraine for a moment.