Japan yields break central bank ceiling as markets press for policy shift

The yield on Japan's benchmark 10-year government bonds breached the central bank's new ceiling on Friday in the market's most direct challenge yet to decades of uber-easy monetary policy, before a wave of emergency bond buying reined it back in.

Swirling speculation that the Bank of Japan's policy of yield curve control (YCC) could be revised, or even abandoned, as early as next week had investors rushing for the exits.

That catapulted 10-year Japanese government bond yields as much as 4 basis points higher to 0.54%, the highest since mid-2015 and above a recently widened band of -0.5% to +0.5% set by the BOJ in a shock decision just three weeks ago.

The stress was evident across the yield curve, forcing the BOJ to announce two separate rounds of emergency buying worth around 1.8 trillion yen ($13.9 billion) combined. The central bank already holds 80% to 90% of some bond lines.

That went some way to restoring calm, with the 10-year yield gradually easing back to 0.5% as of 0603 GMT.

"The attack on BOJ, mainly from foreign investors, continues," said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.

The BOJ is an outlier in clinging to stimulus while most central banks globally are deep into rate-hiking campaigns, but signs of stickier inflation and a possible rise in Japan's mostly stagnant wages have emboldened some investors.