BOJ's Break From Battling the Yield Curve May Soon End

(Bloomberg) -- Japan’s benchmark bonds may be flirting with sub-zero yields, but the end of summer could see the central bank reaching for its battle fatigues again.

Sliding global yields the past month have allowed the Bank of Japan to scale back its bond buying program, which is aimed at keeping policy loose and boosting monetary supply. That benign environment, however, could shift at the end of September: that’s when the Federal Reserve is expected to give details on its balance-sheet reduction plans. The European Central Bank, too, is getting closer to the day when it will have to decide on tapering.

Policy normalization by those central banks would trigger a rush of stock and bond selling, says Satoshi Shimamura, head of rates and markets in the investment strategy department at MassMutual Life Insurance Co. in Tokyo. Then, Japan’s 10-year bond yield should start rising toward 0.1 percent, he said.

To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Emma O'Brien