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The yen comes under pressure as the Central Bank of Japan cuts the size of its routine bond-buying operations
The Central Bank of Japan sought to reduce its presence in the bond market, and the size of its proposed purchase of government bonds in its regular operations on Monday was lower than on April 24. The move could put upward pressure on Japanese government bond yields, potentially narrowing the large interest rate differential between Japan and the United States, which is negative for the yen Exchange rate. Immediately after the Central Bank of Japan's announcement, the Benchmark 10-year Japanese bond yield moved higher, and the yen recovered its earlier losses. The Central Bank said it would buy 425 billion yen ($2.7 billion) of 5-10 year government bonds, compared with 475.5 billion yen last month. The latest purchase size is still within the planned range for the current quarter. This is the first time since late December that the Central Bank has tapered its purchases. "The Central Bank's cuts to purchases came as a surprise, which could help boost yields," said Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. "It's hard not to see this move as a response to the yen's recent weakness, and the bond market could see more long Fluctuation."