BOJ Paves Way to Buy More Short-Tenor Bonds to Offset Supply
BOJ Signals Higher Short-Tenor Bond Purchases as Supply Looms
(Bloomberg) -- The Bank of Japan paved the way for itself to buy more shorter-end debt in May, seeking to mitigate the impact of increased government borrowing on markets.
The central bank widened the indicative buying range for debt maturing in 1-to-10 years, while reducing by one the number of days it will buy 3-to-5 bonds in May, according to its statement on Monday. The overall amount to be spent on purchases of debt due in up to a decade may increase by about 375 billion yen ($3.5 billion) next month.
The move comes after the BOJ earlier on Monday said it’ll buy as many bonds as it needs, ditching its guideline to increase holdings of government debt by around 80 trillion yen per year. The change sees Japan’s central bank joining global counterparts in their unprecedented expansion of monetary stimulus as the coronavirus hammers the nation’s economy.
The biggest impact of the BOJ’s changes to the monthly plan will be for the 1-to-3 and 5-10 year zones. Japan’s government this month unveiled plans to boost issuance of shorter-maturity debt to fund cash handouts that are part of its more than $1 trillion stimulus.
“Since additional debt issuance will center around the short- to medium-term maturities, it’s natural to see the BOJ boosting purchases in these zones to contain a rise in yields,” said Takenobu Nakashima, senior rates strategist at Nomura Securities Co.
Click here to see a table showing the changes compared to the April plan.
Yield Control
Monday’s move also marked the second straight month that the BOJ tweaked its buying plan to pave way for more purchases in the 1-to-10 year zone.
Japan’s benchmark 10-year yield finished the day 1.5 basis points lower at minus 0.04%. The yen held its earlier advance and was up 0.3% to 107.17 per dollar.
The central bank won’t let 10-year bond yields rise for the time being, Governor Haruhiko Kuroda said at a news conference following the policy decision.
“The BOJ stepped up purchases in line with its comments that it wants to primarily contain a rise in yields, with Kuroda saying the BOJ would aim to keep 10-year yield around zero,” said Mari Iwashita, chief market economist at Daiwa Securities Co.
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