The Bank of Japan bought 16.20 trillion yen ($119 billion) worth of Japanese government bonds in June, setting a monthly record, after it sought to stem a rise in long-term yields above its upper limit to ensure monetary easing, data showed Thursday.
The BOJ's attempt to defend its 0.25 percent cap on the benchmark 10-year Japanese government bond yield came as rising long-term interest rates overseas pulled their Japanese counterparts higher. The central bank's bond-buying spree to maintain ultralow rates contrasted with its U.S and European peers, which are moving to tighten their policy, causing the yen to plunge.
The previous monthly high was 11.58 trillion yen in April 2016.
After years of monetary easing under Governor Haruhiko Kuroda, the BOJ held a record 528.23 trillion yen worth of long-term Japanese government bonds at the end of June, roughly half of the outstanding government debt, the BOJ data showed.
The BOJ has stuck to its monetary easing policy despite growing market pressure to tweak it, on the view that a recent bout of commodity-led inflation will not be sustainable and its 2 percent target will unlikely be attained in a stable and sustainable manner.
Under its yield curve control program, the BOJ sets short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields around zero percent. It has allowed the 10-year yield to move within a range of minus 0.25 percent and 0.25 percent.
The central bank said in April it would buy unlimited amounts of 10-year bonds at a fixed rate of 0.25 percent every business day in principle.
The BOJ's dovish stance has prompted the yen to fall sharply, particularly against the U.S. dollar, to hit its lowest level in over two decades.
That has created a headache for resource-poor Japan, which relies on imports of energy and raw materials, as households are starting to feel the pinch from higher prices of everyday goods.
The U.S. Federal Reserve has already entered its rate hike cycle to tame inflation at levels unseen in decades, and the European Central Bank is also expected to follow suit this month.
Kuroda has maintained that the time is not ripe to consider policy normalization, but analysts say the BOJ's swollen balance sheet is expected to pose a challenge when it does decide to explore an exit from monetary easing.
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