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The Bank of Japan sees no need to further reduce the scale of its JGB purchases at present, despite some market players seeing the bank scale back buys, MNI understands.

JGB yields, particularly the 10-year, continue to trade in a tight range despite the BOJ's decision to allow rates to trade in a range of up to 25 bps either side of its 0% target.

Bank officials see it as natural for JGB yields to move in a narrow range, with U.S. rates stable after the recent rising to one-year highs. The BOJ decided back in March not to intervene at every twist and turn of the bond market but the BOJ's stance isn't fully understood by market players.

The same officials see the need to maintain the current guideline for JGB buying operations to get market players' to fully understand its stance, maintaining the view that the yield curve must stay at a low level now as Covid-19 continues.

However, they don't rule out the possibility that the BOJ could either increase or decrease the scale of its purchases in an emergency scenario.

Despite stable U.S. Treasury bond yields, the BOJ is worried by the high implied volatility on Fed Fund futures on expectations the Federal Reserve could start to taper its bond buying over inflation concerns. U.S. inflation expectations and long-term interest rates are seen as a big risk for global financial markets by the BOJ, seeing the trend of a weaker yen led by an interest rate gap between the U.S. and Japan not changing anytime soon.

MNI Singapore Bureau | +65 9 632 1991 |
MNI Singapore Bureau | +65 9 632 1991 |

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