BOJ reduces purchases of bonds to arrest yield slide

Bloomberg

The Bank of Japan (BOJ) reduced purchases of bonds for the first time in two months, stepping in to arrest a decline in yields amid a global debt rally spurred by rising risks to growth worldwide.
The central bank offered to buy 180 billion yen ($1.6 billion) of securities maturing in 10-to-25 years at regular operation, versus 200 billion yen previously. The last reduction in this zone was in July.
Taking into account all maturities, the move is the first cut in purchases since December 14. Bonds have rallied worldwide as investors seek the safety of fixed-income assets with economic growth forecasts from Europe to Australia being slashed.
A dovish tilt in monetary policies of major global central banks including the Federal Reserve has also burnished debt’s appeal BOJ’s move brings back the debate on tapering of debt purchases back into focus, as it came after yields on so-called super-long bonds fell to their lowest since late 2016 on Friday.
“The cut is very significant in halting the drop in yields,” says Katsutoshi Inadome, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
“The move came amid growing speculation in markets that the BOJ is holding off from tapering which was partly why the hunt for yields in super-long maturities has accelerated. But now that premise is removed, this suggests that the BOJ will likely resume its tapering when yields drop sharply.”
“BOJ’s action will restrain attempts to rapidly flatten the yield curve,” says Naoya Oshikubo, a senior economist at Sumitomo Mitsui Trust Asset Management Co. in Tokyo.
“The dollar-yen’s rebound above 110, recovery in Japanese stocks and the external-market environment were favourable for the BOJ to taper.” The yen’s reaction was limited as investors don’t see the BOJ’s reduction of purchases as a change in its monetary policy, says Koji Fukaya, chief executive officer at FPG Securities in Tokyo. The market thinks the BOJ will keep its ultra-loose monetary policy for a while and this shouldn’t affect the dollar-yen exchange rate.