Yahoo Finance Investors Split on Whether BOJ Will Cut Bond Buying Again Today
(Bloomberg) -- Investors are divided on the likelihood of the Bank of Japan repeating its surprise move earlier this week by reducing purchases of government bonds in a regular buying operation this morning.
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Against the backdrop of a weak yen and wide yield gap between Japan and the US, the BOJ on Monday offered to buy a smaller amount of 5-to-10 year debt than in its previous operation. That had fueled speculation of the same happening today at the 10:10 a.m. operation, until US inflation data on Wednesday eased pressure on the yen and the yield divide.
Yusuke Hashimoto, portfolio manager at AllianceBernstein Japan Ltd., expects the BOJ to reduce its purchases of bonds due in three to five years, judging that this won’t cause turmoil as the bank gradually moves away from its super-easy policy. Officials may also decide at its June or July policy board meeting to cut the planned monthly bond buying amount to about ¥5 trillion ($32 billion) from ¥6 trillion, part of its efforts to reduce its massive holdings of debt, he added.
The central bank owned 54% of outstanding government bonds at the end of last year.
Read more: BOJ’s Surprise Cut to Bond Buying This Week Fuels Rate-Hike Bets
Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management Co., said that with the yen market relatively calm, the BOJ likely won’t reduce buying on Friday. The yen’s weakening was seen as a reason for the decreased purchases on Monday, though the market will face continued uncertainties on when the central bank may cut back on buying.
The divided views on whether the BOJ will reduce bond buying, and at what pace, highlight the complexity of ‘normalizing’ monetary policy in Japan after more than a decade of radical easing measures to combat deflation. The yen may tumble further if the central bank doesn’t reduce bond buying and keeps interest rates on hold. That will likely accelerate inflation by pushing up import costs, but raising borrowing costs may damp demand from consumers and companies used to minimal interest rates.
The yen weakened 0.3% against the dollar late Thursday, after several Federal Reserve officials said the central bank should keep borrowing costs high for longer. That prompted swaps traders to decrease bets on Fed interest rate cuts, leaving just one cut fully priced in this year from two.
Treasury yields and the US currency rose in reaction. The yen is little changed at 155.36 per dollar as of 8:46 a.m. in Tokyo Friday.
--With assistance from Shintaro Inkyo and Shen Hong.
(Adds yen moves late Thursday at the end of the story.)
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