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Whippy conditions are the order of the day in Japan’s bond and currency markets after the Bank of Japan conducted its first unlimited purchase of government bonds at a 10-year maturity.

The news prompted a sharp drop in bond yields, which move inversely to price, as well as the yen, undoing moves earlier today when the central bank offered to buy more bonds than initially expected.

The BoJ offered to buy an unlimited amount of 5- to 10-year bonds, with 10-year bonds to be bought at a fixed rate of 0.11 per cent, according to its web site. That could assuage markets’ concerns over whether the central bank remains committed to keeping interest rates low in an effort to support inflation and economic growth in Japan.

The yield on the 10-year JGB is trading at 0.111 per cent, and had fallen as low as 0.103 per cent following the BoJ’s most recent announcement. Shortly before, it traded as high as 0.153 per cent, the first time above 0.15 per cent since January 29, 2016 when the BoJ announced it would take interest rates into negative territory for the first time.

In contrast to the fixed rate auction, the BoJ said earlier this morning that it would buy ¥450bn ($3.99bn) worth of 5- to 10-year bonds in the market, mirroring the size of its previous round of purchases a week ago. However, the central bank had said on Tuesday in its monetary policy decision it planned to wind back the size of today’s purchase to ‎¥410bn.

That news initially prompted a rise in yields to more than 0.15 per cent.

Similarly, the yen has also endured some whippy trading. It is now sitting 0.2 per cent weaker at ‎¥113.06 per dollar, but had traded as much as 0.4 per cent weaker after the announcement of the fixed rate auction. Earlier this morning the currency had been as much as 0.3 per cent stronger.

Additional reporting by Robin Harding in Tokyo

Chart courtesy of Bloomberg

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