Photo/Illutration The Bank of Japan’s head office in Tokyo’s Chuo Ward (Asahi Shimbun file photo)

The Bank of Japan's purchase of Japanese government bonds hit a monthly record of 16.2 trillion yen ($119.5 billion) in June, the central bank said on July 7.

Selling pressure mounting mainly from foreign investors is seen as having led to the record.

“Many foreign investors are involved in short selling as they anticipate a rise in Japan’s interest rate,” said Izuru Kato, president of Totan Research Co., which analyzes trends in financial markets. 

The purchase amount increased 9 trillion yen more than in May as the central bank scrambled to buy bonds to keep the benchmark 10-year government bond yield under the BOJ-set cap of 0.25 percent amid the selling pressure.

The BOJ decided in April to buy an unlimited number of government bonds at a fixed rate to keep the yield from rising.

The yen weakened as much as 20 yen over four months since March as central banks in the United States and Europe moved to hike interest rates to fight inflation, creating a growing gap in Japan's rate with those countries.

The weaker yen, coupled with the war in Ukraine, led to a steep surge in crude oil prices and other imports, weighing heavily on Japanese households.

Foreign investors began selling bonds on speculation the central bank would finally shift from its massive monetary easing policy.

Despite the BOJ’s bond-buying operation, the yield topped 0.25 percent several times, hitting 0.265 percent on June 17.

Kato said bond selling could intensify in the coming months.

“Japanese institutional investors and banks are taking a wait-and-see approach for now,” he said. “But if they decide the central bank cannot hold up its policy any longer, bond selling will become impossible to rein in.”

The BOJ’s previous monthly buying record was 11.58 trillion yen in April 2016. Its holdings now account for more than 50 percent of all outstanding bonds the Japanese government has issued, according to an estimate from Mitsubishi UFJ Morgan Stanley Securities Co.

The BOJ's holdings of outstanding bonds was at 13 percent as of the end of March 2013 before the central bank embarked on its massive monetary easing policy to shore up the economy. It rose to 43 percent as of the end of this March. 

(This article was created from reports by Shinya Tokushima and Eisuke Eguchi.)

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