The Bank of Japan's own researchers are undermining Gov. Haruhiko Kuroda's view that the market is functioning well as the central bank buys an unprecedented amount of debt.
Some indicators suggest liquidity in Japanese government bonds is falling after long-term yields dropped, regulations changed and the central bank bought debt, according to a BOJ report published on Thursday. A gauge of expected bond price swings was set for its biggest quarterly gain since 2013 as two-year notes remained untraded since March 18 at Japan Bond Trading Co., the nation's largest inter-dealer debt broker.
Kuroda said Friday that quantitative easing was working well, after the central bank cornered a quarter of the ¥1.02 quadrillion ($8.5 trillion) of outstanding sovereign debt in an effort to end deflation. Minutes released Friday of the BOJ's policy meeting in February showed that some members said the feasibility of continuing future bond purchases warranted attention and volatility has increased.