Bank of Japan Cuts Some Bond Purchase Targets Over Next Quarter

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The Bank of Japan cut bond purchases for the next three months while shifting to a quarterly-buying plan to offer more certainty to markets.

The quarterly plan released Tuesday showed a reduction of at least 25 billion yen ($226 million) in purchases of each of the one-to-three, five-to-10 years and 10-to-25 year buckets. Previously, it had only released monthly purchase targets.

“The BOJ appears to want to avoid its own buying being used as a catalyst to move markets or lead to more price actions,” said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “It cut amounts in key maturities to help maintain market mechanism over the long run.”

Bond market participants raised the idea of a quarterly plan in their regular meeting with the BOJ this month, according to minutes released Monday. Frequent changes in the purchase size would draw attention to the market operations, the minutes showed.

The BOJ said it may “exceptionally” adjust the amount in case the level of the yield curve changes substantially. The schedule of purchases for the following month will continued to be released at the end of each month.

Japanese government bond futures slid as much as 13 ticks after the announcement. In the cash market, the benchmark 10-year yield was unchanged at 0.055% while the 20-year yield added one basis point to 0.440%.

“Super-long JGBs may underperform following the latest BOJ plan,” said Muguruma. “But, any rise in yields will likely be met with investor demand, so there wouldn’t be a sharp yield curve steepening.”

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