MNI POLICY: BOJ Excludes Outright Buys Of New 20-, 30-Yr JGBs

     TOKYO (MNI) - The Bank of Japan Wednesday excluded the newest 20- and

30-year Japanese government bonds from its outright purchases of longer-end

bonds, a move aimed at preventing longer-end bond yields from falling.

     BOJ Governor Haruhiko Kuroda has repeatedly said that it's undesirable for

yields on super long-term JGBs to fall sharply.

     Excessive declines in yields at the longer-end of the curve would erode

investment returns of pension funds and life insurance firms, which in turn will

hit consumer sentiment. This is one of the more prominent side-effects of the

BOJ's negative interest rate policy.

     The BOJ Wednesday offered to buy JGBs with a remaining life of 10-to-25

years and more than 25 years but the bank decided not to buy the No. 170 20-year

JGBs issued on Friday, or the No. 64 30-year bonds issued Oct. 11.

     The BOJ may consider buying those bonds after a period of circulation in

the secondary market in order to increase their liquidity and to increase

pricing mechanism.

     The BOJ has reduced the scale of its purchases of super long-term JGBs to

curb an undesirable drop in longer-end bond yields, as it sees a drop in short-

and medium-term interest rates as more effective in stimulating economic

activity and boosting prices.

--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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