A surprise adjustment to BOJ policy in December was supposed to improve the operation of the market but hardly did so. In that move, the central bank widened the band in which 10-year Japanese Government Bond (JGB) yields could move 50 basis points either side of zero from 25 basis points.

The move only heightened market speculation that the BOJ would further loosen or abandon its yield-control policy (Yield Curve Control – YCC), forcing it to buy even more bonds to defend its new upper limit.

Traders say betting on such policy change through futures has now become prohibitively expensive.

They cannot profitably short-sell the nearest three-month futures contract, maturing in March, because the BOJ owns most of the so-called cheapest-to-deliver bonds that the futures contract is pegged to.

The spread between futures maturing in March and June stood at 1.30 yen on Monday, after widening to much as 2.34 yen on Jan. 23, the biggest gap since Sept. 1999. In early December it was 0.6 yen.