The Bank of Japan’s purchase of Japanese government bonds hit a monthly record of 16.2 trillion yen ($119.5 billion) in June, the central bank announced on July 7.
Growing selling pressure mainly from foreign investors is believed to have led to the record.
“Many foreign investors are involved in short selling as they anticipate higher interest rates in Japan,” said Izuru Kato, president of Totan Research Co., which analyzes financial market trends.
The amount of buying rose 9 trillion yen more than in May as the central bank rushed to buy bonds to keep the yield on benchmark 10-year government bonds below the BOJ cap of 0.25% amid selling pressure.
The BOJ decided in April to buy an unlimited number of fixed-rate government bonds to prevent the yield from rising.
The yen has weakened to as low as 20 yen in the four months since March as central banks in the United States and Europe moved to raise interest rates to fight inflation, creating a widening gap between Japanese rates and these countries.
The weakness of the yen, coupled with the war in Ukraine, led to a sharp rise in the price of crude oil and other imports, weighing heavily on Japanese households.
Foreign investors began to sell bonds in the belief that the central bank would eventually abandon its policy of massive monetary easing.
Despite the BOJ’s bond buying operation, the yield exceeded 0.25% on several occasions, reaching 0.265% on June 17.
Kato said bond selling could intensify in the coming months.
“Institutional investors and Japanese banks are taking a wait-and-see approach for now,” he said. “But if they decide that the central bank can no longer sustain its policy, the bond selling will become uncontainable.”
The BOJ’s previous monthly buying record was 11.58 trillion yen in April 2016. Its holdings now account for more than 50% of all outstanding bonds issued by the Japanese government, according to an estimate from Mitsubishi UFJ Morgan Stanley Securities. Co.
The BOJ’s holdings of outstanding bonds stood at 13% at the end of March 2013, before the central bank embarked on its policy of massive monetary easing to support the economy. It rose to 43% at the end of March.
(This article was created from reports by Shinya Tokushima and Eisuke Eguchi.)