MNI INSIGHT: No Bold BOJ Move Likely To Curb Lower JGB Yields

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is unlikely to act aggressively to curb

lower JGB yields, seeing recent market moves as part of a global trend and

consistent with downside economic risks, MNI understands.

     The BOJ is also cognisant that even if it attempts to slow the fall in

yields, bond market trends amid global easing by central banks will probably are

against them.

     There is also a concern at the Bank that trying to curb the decline in

yields by reducing JGB purchases will narrow further the yield spread between

the U.S and Japan, and that will help support the yen, pushing it higher against

the dollar.

     Reducing the scale of JGB purchases to curb lower bond yields will

contribute to narrowing interest rate gap between Japan and the U.S, which in

turn will strengthen the yen.

     BOJ policymakers are not fixed solely on a fixed yield level, but will take

the pace and volatility of moves, along with overall context of yields changed,

into account.

     There is still some concern that benchmark 10-year JGB yield fall below

-0.255% -- the recent market low and close to the current market level of -0.23%

-- with the -0.3% level seen as a level that could trigger a policy response,

such as widening the official yield toleration range to -0.200% to +0.200%.

     But that would only bring the range into line with the current unofficial

BOJ toleration level.

     BOJ Deputy Governor Masayoshi Amamiya has said that doubling the current

-0.10% to +0.10% range is a policy item decided at monetary policy meetings and

therefore cannot be activated ad hoc by the markets division.

     Last Friday, the BOJ trimmed market JGB purchases at the planned 5 to

10-year buying operation to Y450 billion from Y480 billion at the previous

similar operation, with the Y30 billion cut smaller than the Y50 billion

increase seen on March 6.

     The BOJ is still against conducting a fixed-rate operation to slow a drop

in bond yields, as such a move would highlight the BOJ's lower yield limit

toleration, a move that could further strengthen the yen.

--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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