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Japanese government bond yields and the yen have swung wildly in morning trade after the Bank of Japan bought more bonds than expected in its market operations.

The yen was 0.1 per cent firmer at ‎¥112.68 per dollar. In the aftermath of the BoJ operations, it weakened as much as 0.3 per cent, before quickly reversing that loss to be as much as one-quarter of 1 per cent stronger.

Similar story for bonds. The yield on the 10-year JGB, which moves inversely to price, jumped to as high as 0.15 per cent, before pulling back to be 2.2 basis points higher at 0.138 per cent.

The BoJ this morning offered to buy ‎¥450bn yen ($3.99bn) of 5- to 10-year JGBs in the market, mirroring the size of its previous round of purchases a week ago. The BoJ said on Tuesday in its monetary policy decision it planned to wind back the size of today’s purchase to ‎¥410bn.

That change looks to have caught traders by surprise, and comes a day after the 10-year yield crossed through 0.1 per cent for the first time since the BoJ announced negative interest rates on January 29, 2016.

Ahead of the BoJ’s meeting this week, analysts at Bank of America Merrill Lynch said markets had become wary about the prospect of policy tightening. BoAML said:

On 25 January, the BoJ skipped JGB purchases in the 1-5 year part of the yield curve, prompting tightening fears. However, the BoJ subsequently boosted the amount of its 5-10 year purchases on 27 January, in a clear signal that it was committed to maintaining its 10 year yield target.

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