MNI BRIEF: BOJ JGB Guideline Aims to Further Improve Function

The Bank of Japan's decision to release guidelines for purchase of JGBs on a quarterly rather than monthly basis going forward is aimed at further increasing the functioning in bond markets, while the scale of the reduction in both short- and longer-end JGBs is a reaction to the recent tighter supply-demand conditions, with the central bank's latest decisions are partly based on requests from JGB market players, MNI understands.

The minutes of 13th Round of the "Bond Market Group" Meetings released Monday showed there were only "a small number of inter-dealer transactions for a broad range of maturities throughout the month of May, resulting in a further deterioration in market liquidity."

The minutes also showed the reduction in the "size and the frequency of outright purchases of JGBs in April was appropriate in terms of maintaining market functioning." "Frequent changes in the purchase size would rather draw attention to the Bank's market operations. Hence, we believed it might be better to make changes to the purchase size about once every three months," MNI heard from a participant in the meeting.