The key yield on 10-year Japanese government bonds on Friday topped the upper limit of 0.50 percent set by the Bank of Japan for the first time since the trading band was widened last month, as the market reacts to expectations the central bank will again tweak policy.
The move came despite the BOJ's desperate attempts to keep the yield below the threshold by offering to buy unlimited amounts of 10-year bonds at that level. The central bank purchased a record daily amount of Japanese government bonds on Thursday, ahead of a two-day policy meeting next week.
The benchmark yield on 10-year bonds hit 0.545 percent at one point on Friday, up 0.045 percentage point from Thursday and its highest level since June 2015.
The BOJ stunned markets in December by widening the trading band for the key yield, a change taken as a de facto rate hike after it defied market pressure to tweak its policy in line with global peers like the U.S. Federal Reserve and the European Central Bank which have raised interest rates to rein in soaring inflation.
The BOJ sets short-term interest rates at minus 0.1 percent and guides 10-year yields to around zero percent under its yield curve control program, a measure that keeps borrowing costs at rock-bottom levels for businesses and households.
After the BOJ's latest decision, the benchmark yield is now allowed to move in a range of minus 0.50 percent and 0.50 percent, wider than the previous band of minus 0.25 percent and 0.25 percent.
Governor Haruhiko Kuroda has said he believes allowing the yield to trade in a wider range does not represent a rate hike or policy tightening, stressing the change is aimed at fixing distortions in the bond market.
The BOJ remains committed to its ultralow rate policy to support the economy on the view that its 2 percent inflation target has yet to be achieved stably and sustainably.
Its argument has come under greater scrutiny in recent months, however, as inflation in Japan has been accelerating at a pace unseen in decades and the key gauge of inflation has remained above the 2 percent target for eight months.
Financial markets are fixated on the pace of rate hikes by the Federal Reserve at a time of recession worries. Consumer inflation in the United States is well above the Fed's target but the pace of increase has slowed.
