The Bank of Japan published detailed schedules of planned asset purchases for the first time on Tuesday as it seeks to prove its commitment to a zero per cent cap on 10-year government bond yields.
Japan’s central bank said it will buy a minimum of ¥1.375tn and a maximum of ¥2.175tn of government bonds during March, giving a series of dates and estimated sizes for its planned bond auctions at different maturities.
Setting out the purchase plan in advance makes it less likely that the BoJ will skip an auction — a common subject of market speculation as the central bank accumulates an ever larger share of outstanding government bonds through its programme of monetary easing.
The BoJ gave a strong hint that its announcement is meant to signal a minimum plan for purchases, rather than a maximum, saying it “may increase the frequency as needed”.
“The bank will conduct purchases in a flexible manner, taking account of market conditions, aiming to achieve the target level of a long-term interest rate specified by the guideline for market operations,” it said.
Japan’s 10-year yield is currently trading at 0.04 per cent, having reached 0.11 per cent at one point earlier this month before the BoJ stepped in and offered to buy in unlimited quantity to prevent it from rising any higher.
Investors have more clarity about the Bank of Japan’s commitment to yield curve control, said Jim Leaviss, retail bond head at UK fund house M&G Investment.
“The markets had been speculating that the BoJ was not fully committed,” he said. “There was some scepticism about how much longer policymakers would want short-dated bonds to retain negative rates and whether they were still needed. Investors had been testing levels above those targeted by the BoJ. Now there is more transparency.”
Japanese policymakers embraced a new approach to their stimulus measures last year, promising to carry out unlimited bond purchases to ensure the 10-year yield stays around zero per cent in an effort to banish deflation and revive growth in the world’s third-largest economy.
Four years after the Bank of Japan launched its massive monetary easing, growth in the economy is above its long-run trend, but inflation is still close to zero. Analysts expect it to pick up this year given a sharp fall in the yen after Mr Trump’s election.
In a note before the BoJ announced its plan on Tuesday, Citi analyst Tomohisa Fujiki said it was unclear what the central bank will do if the balance of supply and demand in the JGB market tightens. “The bank may be forced to make purchases at excessively low yields,” he said.
As well as plans for its JGB buying, the BoJ also set out a schedule for purchases of commercial paper and corporate bonds running through to April.
Even though the BoJ shifted to the yield curve cap last September as its main monetary policy tool, it is still purchasing bonds at a pace of around ¥80tn a year, requiring an intensive schedule of auctions.
Those purchases have given it the largest balance sheet of any central bank in the world relative to the size of the economy.