Trading of Japanese government bonds has increased since the central bank moved away from controlling yields last month, and at least one indicator in the market suggests that liquidity is returning.
The situation is still far from normal, with the Bank of Japan owning more than half of the ¥1.097 quadrillion ($7.2 trillion) of outstanding securities in the market after years of asset purchases. Gov. Kazuo Ueda has indicated debt buying will be dialed back at some point, and this is necessary given that the central bank’s own survey shows the need for more market participants and increased trading.
Among the signs of progress, the average bid-ask spread to trade the country’s debt has tightened to the narrowest in at least six months, a sign there are plenty of traders wanting to buy or sell the notes.