BoJ: Less attention to smaller JGB purchases - Nomura

Yujiro Goto, Research Analyst at Nomura, explains that the BOJ has reduced the amount of its 3-5yr JGB purchases slightly from the previous purchase operation as the Bank bought JPY380bn of 3-5yr JGBs, while it purchased JPY400bn previously.

Key Quotes

“The BOJ is scheduled to announce its JGB purchase schedule for April on Friday, but it reduced the amount before the announcement of the schedule. The JGB market’s reaction was limited, as was the FY market’s reaction. Expectations for rate hikes by major central banks have receded recently, which likely made it easier for the BOJ to reduce the size of the purchase without much JGB volatility.” 

“BOJ Governor Kuroda re-emphasised the strength of the yield curve control framework at his speech last Friday and the Bank is likely to continue to adjust the amount of JGB purchases flexibly to achieve the desired curve. Governor Kuroda said “yield curve control is designed to enable the Bank to conduct monetary policy in a more flexible manner, depending on the situation, compared to the previous frameworks in which the amount of JGB purchases was fixed.” Then, he said the impact of a unit amount of JGB purchases could be significant if JGBs to be purchased become scarce. These comments re-emphasise the departure from quantity commitments towards a lower yield curve. The BOJ is likely to keep gradually reducing its JGB purchases, while a temporary rise in the purchase amount is possible to stem volatility as in February.”

“As the Bank is expected to reduce its JGB purchases gradually, the calm market reaction today was likely encouraging for the Bank. Volatility in the Japanese financial market has been low, which may encourage foreign bond investment by insurance companies as the new fiscal year starts next week. While market expectations for rate hikes by the Fed have declined recently to the level at end-February, two more rate hikes by the Fed in 2017 are still the most likely scenario, while the ECB’s policy normalisation is likely approaching. We expect the BOJ’s dovish stance, which is evident in lower yields not the quantity of JGB purchases, to remain as JPY negative.”