Investors hoping the Bank of Japan (BOJ) would provide clues on how it plans to control yields in a monthly statement yesterday were not disappointed.
The central bank reduced its target for purchases of debt maturing in more than 10 years to a range of about ¥200 billion to ¥400 billion (US$2 billion to US$4 billion) per auction this month, from about ¥300 billion to ¥400 billion last month.
Based on its plan to buy ¥410 billion at the first auction this month, that would be the least since expanding asset purchases two years ago, based on Bloomberg calculations that assume the same purchase amount at each operation.
STEEPENING YIELD CURVE
“The announcement shows the BOJ’s intention to steepen the yield curve,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo.
“The long end of the curve may see some selling pressure, but the impact on JGBs [Japanese government bonds] and the yen will probably be limited, because the numbers came in within the expected range,” Ogata added.
The central bank said in its Sept. 21 policy statement that it is now targeting the yield curve, but only specified two points: the deposit rate at minus-0.1 percent and the 10-year yield at about “zero percent.”
That shone a spotlight on yesterday’s statement in the hope that more on the desired curve shape could be gleaned from the central bank’s actual purchases.
UNCOMFORTABLY LOW
The central bank also lowered the target for five-to-10-year securities to ¥290 billion to ¥530 billion, from ¥300 billion to ¥600 billion.
It left the frequency of its operations at eight to 10 times per month, with an overall target to buy ¥8 trillion to ¥12 trillion.
The central bank gave a clue to its intentions earlier yesterday, when it bought ¥410 billion of five-to-10-year securities, instead of the ¥430 billion indicated in its statement for last month.
It was the first time in six months the central bank had reduced buying before releasing its monthly plan, spurring speculation the benchmark yield might be getting too low for BOJ Governor Haruhiko Kuroda’s comfort.
The benchmark 10-year yield fell as low as minus-0.09 percent this week for the first time in a month. It was at minus-0.085 percent when markets closed in Tokyo yesterday, unchanged since the release of the statement.
The yield rose above zero for the first time since March on Sept. 21.
The gap between yields on two and 30-year debt — a measure of the steepness of the curve — is near the same level as it was at the time of the policy meeting at about 72.5 basis points, after compressing to as little as 66 basis points in the interim.
UNCHARTED TERRITORY
Kuroda’s targets for the yield curve take Japan’s monetary policy further into uncharted territory as he struggles to stoke inflation.
It also spurred calls for clarity on how he plans to implement the changes, as well as prompting speculation the central bank might be laying the groundwork for a reduction to its ¥80 trillion per year in bond purchases.
The bank last week said it would adjust the volume of its asset purchases as necessary in the short term to control bond yields, while keeping them at about ¥80 trillion annually over the long term.
The central bank has had a target to buy ¥8 trillion to ¥12 trillion in government bonds from the market each month.
The central bank owned 36 percent of outstanding Japanese government bonds at the end of June.
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