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.

“Liquidity in the bond market has gone down, and nothing has changed in terms of how easy it is for prices to fluctuate,” said Yusuke Ikawa, a strategist at UBS Group AG in Tokyo. “The reason why Kuroda hasn’t admitted the fact that there are liquidity issues must be because he’s weighing the effect and the limits of stimulus measures. If he does, he’ll have one hand tied behind his back in terms of his next move.”

The JPX JGB Futures Volatility Index, which covers expected fluctuations over the next 30 days, is set to gain for a third consecutive quarter. It has jumped 26 percent so far this year, the most since the second quarter of 2013, when Kuroda introduced unprecedented stimulus.

“There is no major disruption in executing trades or hedging positions for now, and it doesn’t seem liquidity in the market has declined drastically,” BOJ researchers wrote in the report. “Having said that, a number of indicators signal that market liquidity has been declining since autumn 2014.”

The report was written by four BOJ officials including Tetsuo Kurosaki and states that the content doesn’t reflect the central bank’s official view.

BOJ policymakers increased stimulus in October, pledging to expand the monetary base at an annual pace of ¥80 trillion, enough to snap up every new bond the government issues. The benchmark 10-year sovereign bond yield has dropped 27 basis points in a year to 0.325 percent on Friday after plunging to a record low of 0.195 percent in January.

Investors voiced concerns about low liquidity and higher volatility in a meeting with Finance Ministry officials last week. In a quarterly BOJ survey of market participants conducted in late February, 95 percent said market functionality was either low or not very high, and 75 percent said conditions had deteriorated from three months earlier.

Kuroda told reporters in Tokyo on Friday that quantitative easing was “working well in theory and in practice,” and that the central bank will continue to monitor financial markets carefully. He said last month he doesn’t think liquidity in the Japanese government bond market has declined particularly as a result of BOJ’s bond buying.

The monetary authority’s 2 percent inflation target remains elusive. Its preferred consumer price gauge rose just 0.2 percent in January from a year earlier when stripped of the effects of an April sale-tax increase.

Two-thirds of 34 economists surveyed by Bloomberg this month expect the BOJ will increase asset purchases at some point, with an expansion of exchange-traded fund or real estate investment trust buying projected by more than half of the respondents.

“Under the BOJ’s massive bond buying program, investors have to come to terms with low liquidity and higher volatility being part of the policy to some extent,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo. “It’s just a fact that there aren’t many measures to deal with declines in liquidity.”

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