FXstreet.com (Barcelona) - The Bank of Japan surprised the market by announcing another round of easing – and a fairly substantial one at that. The lifetime of the Asset Purchase Program was extended by 6-months and its size was increased by JPY 10 trn. The increase is to be evenly split between JGBs and T-bills, and the BoJ now hopes to hit the new higher APP target of JPY 80 trn by end-2013.
A small technical adjustment was also made to the bidding process at the auctions the BoJ uses to buy JGBs from the market. Previously, JGB holders who wished to participate were not permitted to submit a bid below 10bp and, with market yields already at that level, bondholder participation had been in decline.
The BoJ has now scrapped that minimum yield on APP purchases, which should ensure greater bondholder participation in future and so will help ensure the BoJ succeeds at hitting its easing targets. According to Research Analyst Gareth Berry at UBS, “We stress however that the interest on reserves held at the BoJ will still be paid at 10bp and, due to arbitrage opportunities, this will remain an effective floor on JGB yields.”
A small technical adjustment was also made to the bidding process at the auctions the BoJ uses to buy JGBs from the market. Previously, JGB holders who wished to participate were not permitted to submit a bid below 10bp and, with market yields already at that level, bondholder participation had been in decline.
The BoJ has now scrapped that minimum yield on APP purchases, which should ensure greater bondholder participation in future and so will help ensure the BoJ succeeds at hitting its easing targets. According to Research Analyst Gareth Berry at UBS, “We stress however that the interest on reserves held at the BoJ will still be paid at 10bp and, due to arbitrage opportunities, this will remain an effective floor on JGB yields.”
