MNI POLICY: BOJ Bond-Buy Reduction Scale Due Post-Consultations

The Bank of Japan has no set size in mind for its monthly bond buying reduction, with the term “sizeable” still unquantified ahead of consultation talks with JGB market participants on July 9-10, MNI understands.

Earlier this month, Governor Kazuo Ueda said  the central bank could make a "sizeable" cut to its bond buying, although he did not quantify any scale of reductions..

The BOJ will not propose any specific number as to scale of the wind-down, instead looking to seek a consensus among private financial institutions. Officials need to also take account of increased bond issuance next year.

The Bank hopes to establish a consistent framework for bond-buying at the new levels following consultations, so as to offer predictability and stability to markets. Various frameworks are possible, including releasing the scale of bond buying on a monthly, quarterly or yearly basis. The BOJ would prefer to this monthly, in line with current practice. (See MNI POLICY: BOJ Examines Framework To Make JGB Operations Easier)

 Whatever the BOJ decides following the consultations, it will pledge to, if necessary, increase purchase of JGBs if necessary and to conduct a fixed-rate bond buying operation to prevent long-term interest rates from rising sharply.