UPDATE 2-Bank of Japan raises maximum amount of bond purchases for next quarter

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By Junko Fujita

TOKYO, March 31 (Reuters) – The Bank of Japan (BOJ) on Friday raised the maximum size of its planned Japanese government bond (JGB) purchases for all maturities over the next three months, doubling down on efforts to defend its ultra-loose policy.

The BOJ said it would offer to buy between 475 billion yen and 875 billion yen ($3.57 billion-$6.57 billion) of 5-year to 10-year bonds, raising the top end of the range from 775 billion yen in the previous three months.

Upward pressure on yields has eased as investors scooped up safe-haven debt in the wake of financial shocks, such as the collapse of U.S. banks and Swiss lender Credit Suisse’s liquidity issues.

The 10-year JGB yield, which hovered at the top end of the BOJ’s policy band until earlier this month, fell to as low as 0.240% on March 14 and it last traded at 0.320%.

“We expected the BOJ would reduce the range but it turned out that the bank also raised the maximum amounts,” said Noriatsu Tanji, chief bond strategist at Mizuho Securities.

The BOJ maintained ultra-low interest rates this month and held off making changes to its controversial yield curve control (YCC) policy.

But with the nation’s inflation already exceeding the BOJ’s 2% target, the central bank is under pressure to pare down its massive stimulus under new governor Kazuo Ueda, who will take over the post from Haruhiko Kuroda, whose second, five-year term ends on April 8.

“The could mean that the BOJ might abandon its YCC in the very near future so that it can contain rising yields with massive bond buying,” said Masayuki Koguchi, general manager at the fixed income investment division of Mitsubishi UFJ Kokusai Asset Management.

Ueda will take over as the BOJ’s YCC policy remains under attack in the markets, with investors betting on a near-term interest rate hike.

($1 = 133.1900 yen) (Reporting by Junko Fujita Editing by Chang-Ran Kim and Raju Gopalakrishnan)