MNI INSIGHT: BOJ Mulls Gap Between 10-Year JGB Op and Auction

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is considering an extended time gap between

its policy enforcing 5-to-10-year JGB purchases and the regular scheduled

Ministry of Finance auctions of the benchmark 10-year bond to boost market

pricing and functioning, MNI understands.

     The central bank currently conducts bond purchases the day after the

auction but is considering delaying the operation by up to a couple of days to

allow better price formation.

     Officials want any decision to avoid unnecessary noise in the bond market

and will discuss the issue with JGB dealers at the next scheduled meeting on

June 10-11, although they could announce a preliminary decision as early as May

31 when they outline their purchase program for June.

     At present, the bank conducts its purchases of super long-term bonds three

business days after their auctions.

     --NO FREQUENCY CUT

     It is unlikely the BOJ will reduce the frequency of its each JGB buying

operation from the current four times monthly, but it will do so if market

conditions warrant - as they did when trimming purchases from five times a

month.

     The BOJ will continue to conduct its purchases flexibly to achieve control

over the yield curve, allowing the amount outstanding to increase at an annual

pace of up to Y80 trillion - although at present, market conditions have allowed

the bank to slow purchases to Y30 trillion annually.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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