THE Bank of Japan (BOJ) on Tuesday (Jul 9) released a summary of opinions it collected in a survey of bond market participants on how the central bank should taper its huge bond purchases.
Some bond market participants called for reducing BOJ’s monthly government bond purchases to around two trillion to three trillion yen (S$17 billion to S$25 billion), while others called on the bank to keep buying around four trillion yen, BOJ said in the summary.
The summary included opinions that called for an even faster pace of tapering, with one saying BOJ should aim to trim buying to around one trillion to two trillion yen per month.
The findings from the survey were released as part of a briefing material BOJ prepared for a two-day meeting with bond market participants that kicked off on Tuesday.
The outcome of the meeting will be taken into account when BOJ lays out its bond-tapering plan later this month.
The central bank currently pledges to buy roughly six trillion yen ($37 billion) in government bonds per month. It will announce a detailed plan on how to taper the bond purchases at its next policy meeting on Jul 30-31.
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“The BOJ likely has some plans already,” said Naomi Muguruma, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. “What it wants to show is a stance of proceeding cautiously by hosting the gatherings.”
The BOJ has long been characterised as the whale in the pond of Japanese government debt as it pushed other buyers out of the water during an aggressive quantitative easing programme that lasted more than a decade. During that time the bank scooped up more than half of Japan’s outstanding government bonds, creating the potential for its quantitative tightening moves to have major ripples in the market.
Governor Kazuo Ueda’s board decided to slow the pace of bond buying at a policy meeting last month. The BOJ chief said he wanted to construct the plan carefully and that it merited hearings with market players before it was finalised conclusion.
“These two days are going to be critical,” said Yuuki Fukumoto, senior financial researcher at NLI Research Institute. “For the BOJ, the key point is to hear and gather information on how much more bond-buying the market can take to assuage its concerns.”
According to a Bloomberg survey late last month, BOJ watchers predict the central bank will start by reducing its monthly purchases to around five trillion yen (S$42 billion) from the current six trillion yen. They expect that pace to slow to three trillion yen in two years.
Ueda said the size of the reduction would be “sizeable” while declining to elaborate further at a post-meeting press conference on Jun 14. Takahide Kiuchi, a former BOJ board member, said Ueda’s comments implied the reduction would be bigger than the expected first cut.
“Ueda must have been aware that the five trillion yen figure has been doing the rounds for a while before he made that remark,” Kiuchi said. “So it could even be as low as three trillion yen.”
A larger cut than consensus may help ease pressure on the yen by crystalizing the BOJ’s aggressive stance on QT, according to some analysts. The yen weakened to a 38-year low this month, fuelling views that the bank will want to avoid any further dovish signals.
While some economists surveyed expect the bank’s purchases to eventually fall to zero, Atsushi Miyanoya, a former BOJ executive director, said there is “absolutely no chance” of that happening. The bank already bought close to two trillion yen of bonds per month to stabilise the market before it kicked off a massive monetary easing programme in 2013.
The BOJ ended its large-scale easing in March but decided to keep buying roughly the same amount of bonds to avoid triggering shockwaves in financial markets.
The central bank’s 585 trillion yen pile of bonds is bigger than the size of the world’s fourth-largest economy and a key reason bond players must be on a high alert for the BOJ’s next move. REUTERS, BLOOMBERG
