### POV: JGB STEALTH TAPERING SEEMS A..........>

JGBS: ### POV: JGB STEALTH TAPERING SEEMS A REALITY, REDUCED ISSUANCE IN FY2018

LIKELY MEAN STOCK EFFECT WILL WIN OUT. Markets will be buffeted by the competing

forces of the flow effect (higher yields on reduced demand) and the stock effect

(purchases may decrease but holdings of JGB's still rise and keep yields

subdued. MOF announced their decision to reduce the float of JGB's for the 8th

successive year, reducing the liquidity of a market already crowded by the BoJ.

- Figures released recently show that the BoJ purchased Y57tln of JGB's in 2017

despite the official target being Y80tln. The BoJ has pledged to continue easing

until the 2% inflation target is hit, the recent moves suggest they see this

target as still being some way off (a view supported by economic fundamentals),

so rather than kill the remaining liquidity by jacking up purchases the BoJ opt

for a more sustainable policy - reduced purchases for a longer time.

- The Bank will likely not reduce the official target for fear of disrupting the

market, but will take any available opportunities to tweak the shape of the

yield curve in a way that helps Yield Curve Control (YCC) sustainability,

including long end reduction/curve steepening.