The Bank of Japan will be forced to start tapering bond-buying stimulus as soon as a year from now as it runs out of willing sellers, says the nation's top-rated analyst. The good news, he says, is yields will not jump.
That is because by then, even though the central bank will be buying fewer Japanese government bonds, it will have cornered around 43 percent of the market and the dearth of available JGBs will see any rise in 10-year yields draw investors, according to Mitsubishi UFJ Morgan Stanley Securities Co.'s Jun Ishii. It also ultimately means the BOJ will be able to fulfill its pledge to keep the 10-year yield pinned around zero, he says.
"They're approaching the limit for bond purchases, and eventually they'll have no choice but to take the leap into tapering," Ishii said in an interview in Tokyo on Tuesday. "But even then, the magnitude of their existing bond holdings will continue to put downward pressure on yields, so they should be able to taper without a lot of volatility."