MNI BRIEF: JGB Survey Results Increase Pressure On BOJ To Act

The results of Japanese government bond market survey conducted by the Bank of Japan show a deterioration in bond market functioning, increasing pressure on the bank to take policy action to restore market functioning at the March 9-10 policy meeting.

However, the view among board members is more time is needed to assess the decisions to mitigate the side-effects of easy policy and it may not be appropriate to act ahead of March 31, the end of fiscal year in Japan. The BOJ widened the band around its 10-year yield target to 50bp fropm 25bp in December to address bond market distortions.

The BOJ is unlikely to act immediately before the new governor and deputy governors take office unless it confronts a serious situation where it needs to swiftly address market moves. Next week's meeting will be the last presided over by Haruhiko Kuroda. Incoming governor Kazuo Ueda will start on April 9.

Bank officials conclude that distortions in financial markets continue, but bond markets are having a temporary lull. This may allow bank officials to monitor how bond markets evolve in or after April.

The diffusion index showed bond market functioning fell to a record low of -64 in February from -51 in the previous survey in November, the survey conducted from February 1 to 7 showed on Wednesday. The DI of the bid-ask spread fell to -57 from -45 in November and the DI of order quantity by market participants also fell to -58 from -54.