Bank of Japan raises maximum amount of bond purchases for next quarter

THE Bank of Japan (BOJ) on Friday (Mar 31) raised the maximum size of its planned Japanese government bond (JGB) purchases for all maturities over the next three months, doubling down on efforts to defend its ultra-loose policy.

The BOJ said it would offer to buy between US$3.57 billion-US$6.57 billion of 5-year to 10-year bonds, raising the top end of the range from 775 billion yen (S$7.72 billion) in the previous three months.

Upward pressure on yields has eased as investors scooped up safe-haven debt in the wake of financial shocks, such as the collapse of US banks and Swiss lender Credit Suisse’s liquidity issues.

The 10-year JGB yield, which hovered at the top end of the BOJ’s policy band until earlier this month, fell to as low as 0.240 per cent on March 14 and it last traded at 0.320 per cent.

“We expected the BOJ would reduce the range but it turned out that the bank also raised the maximum amounts,” said Noriatsu Tanji, chief bond strategist at Mizuho Securities.

The BOJ maintained ultra-low interest rates this month and held off making changes to its controversial yield curve control (YCC) policy.

SEE ALSO

IMF urges BOJ to allow longer yields to move more flexibly

But with the nation’s inflation already exceeding the BOJ’s 2 per cent target, the central bank is under pressure to pare down its massive stimulus under new governor Kazuo Ueda, who will take over the post from Haruhiko Kuroda, whose second, five-year term ends on April 8.

“The could mean that the BOJ might abandon its YCC in the very near future so that it can contain rising yields with massive bond buying,” said Masayuki Koguchi, general manager at the fixed income investment division of Mitsubishi UFJ Kokusai Asset Management.

Ueda will take over as the BOJ’s YCC policy remains under attack in the markets, with investors betting on a near-term interest rate hike. REUTERS