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By Hiroshi Inoue
TOKYO (MNI) - Bank of Japan officials are studying ways to further improve
the functioning in Japanese government bond markets and the BOJ stands ready to
change the guideline for monthly JGB purchases, MNI understands.
Although it listens, the BOJ doesn't necessarily comply with requests from
bond market players, but the bank is examining whether it needs to change its
guideline to boost volatility and liquidity in bond markets.
BOJ officials periodically meet with market players, not only to examine
developments in bond markets, but also to tease out issues that may need
Changing guidelines isn't a matter of policy decision by board members and
BOJ officials in charge of daily operations can adapt the guideline in a
However, BOJ officials are still opposed to fully discontinuing the
guideline, keeping in place announced days that the BOJ will conducts operation,
the number of operations and the bond buying amount range.
At the July 30-31 meeting, the BOJ board voted 7-to-2 to make its long-term
interest rate target and asset purchase scheme more "flexible," allowing the
nearly flat Japanese government bond yield to steepen slightly in line with
firmer growth and inflation.
The bank "strengthened" the framework, allowing a wider trading range of
+0.2% to -0.2% for the 10-year JGB yield, double the previous, unofficial range
of +0.1% to -0.1%.
--WATCHING JULY EFFECTS
BOJ officials believe it will take time to see how the July decisions
contribute to improving bond market functionality.
The BOJ has been publishing a calendar of days the bank plans to conduct
its bond buying operations to reduce the volatility in bond markets since March
2017, as the JGB market was plagued by volatile bond prices amid high
As a result, JGB volatility has fallen significantly and the BOJ decision
was broadly welcomed by the market. But the drop in liquidity and volatility has
reduced brokers' ability to make profits and conditions have changed with the
passage of time.
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