REPEAT: MNI: BOJ Eyes JGB Functioning; Should Not Disturb Mkts

Repeats Story Initially Transmitted at 04:35 GMT Oct 23/00:35 EST Oct 23

--Changes In BOJ JGB Operations Not Signal Of Monetary Policy

By Hiroshi Inoue

     TOKYO (MNI) - There will be no significant improvement in the functioning

of the Japanese Government Bond market, Bank of Japan officials think, unless

the central bank abandons its large-scale bond purchases, MNI understands.

     Those officials are considering if improved flexibility for outright JGB

buying operations will help boost market functionality, but they see a limit as

to how great the improvement can be all the time the BOJ maintains such a

dominant presence in the market.

     BOJ officials who run the daily market operations and monitor JGB market

functioning will hold their regular meeting with JGB market players later

Tuesday to exchange the view on developments in the bond market and on its

outlook. 

     --HIGH JGB HOLDING

     The outstanding balance of JGBs held by the central bank accounted for

42.30% of the total issuance as of the end of June, up from 41.84% at the end of

March, the latest BOJ data showed.

     Even if the BOJ reduces the scale of its JGB purchase, the proportion of

central bank bond holdings would increase, as overall JGB issuance by the

Ministry of Finance is expected to fall as the economic recovery boosts tax

revenues.

     Under the current framework, the BOJ has been trying to stabilize the

10-year JGB yield, the benchmark for long-term borrowing costs, at around zero

percent and keep the overnight interest rate at -0.1%. The bank has strengthened

the framework in late July, allowing a wider trading range of +0.2% to -0.2% for

the 10-year bond yield, double the previous, unofficial range of +0.1% to -0.1%.

     --NOT UNWIND SIGNAL

     Reducing both the scale of BOJ JGB buying per operation and the frequency

of monthly operations are possible options for the central bank, as is dropping

the fixed schedule for conducting operations.

     BOJ officials believe any change to the format of JGB buying operations

will not be interpreted by market players as meaning the central bank is

considering unwinding its easy policy.

     --YEN IMPACT

     The same officials also believe reducing the scale of its bond buying will

not trigger a stronger yen, as market players understand daily JGB operation do

not imply the outlook for monetary policy.

     However, they are are cautious that increased uncertainties regarding BOJ

operations, which in turn will disturb market players.

     Dropping the schedule of conducting its outright JGB purchase would remove

transparency over operations, and could see market players refrain from trading

bonds until 1010 JST (0110 GMT), when the BOJ usually announces any operation.

     As for the conduct of monetary policy, the BOJ has been making the efforts

to increase the transparency and accountability of policy decisions. Officials

think the BOJ should keep step with policy decisions regarding transparency of

JGB buying operations.

--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