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Bank of Japan’s expansion of bond holdings to slow in 2018: economists

Bloomberg

The pace at which the Bank of Japan is expanding its massive hoard of bonds will continue to slow in 2018, according to the majority of economists surveyed by Bloomberg.

The central bank will increase its Japanese government bond holdings by about ¥44 trillion ($392 billion) next year, according to the average estimate in the survey. That’s well below the BOJ’s ¥80 trillion annual guideline and a considerable drop from the ¥61 trillion increase that was seen in the 12 months through the end of November, according to calculations by the outlet.

Under Gov. Haruhiko Kuroda the BOJ has come to dominate the government bond market in Japan, owning more than 40 percent of outstanding debt and depressing volatility and interest rates. But the pace of its purchases has decelerated after switching emphasis in 2016 from the volume of asset purchases to targeting interest rates.

In addition, more than a third of surveyed economists forecast the central bank will raise its target for 10-year bond yields next year from the current level of 0 percent.

The BOJ has promised to continue with the current easing policy until inflation is stable above 2 percent. It’s less than half way to that target now, and even its own forecasts don’t indicate the goal will be reached next year.

For this week’s Policy Board meeting, its members are highly likely to keep its current ultra-easy monetary policy framework unchanged.

Central bank officials have consistently said that they will continue with their current policies to boost inflation toward the target.

The Policy Board is also expected to discuss adverse impacts of the policy at the upcoming meeting, which will be the BOJ’s final monetary policy meeting this year, sources said.

However, some observers have interpreted recent comments by Kuroda as a sign that the BOJ could start allowing the 10-year bond interest rate to rise before too long. Kuroda has rejected this.

None of the 44 economists surveyed forecast any policy changes at the next BOJ board meeting on Dec. 20-21.

But many in the financial industry are seeking a change in the BOJ policy.

Nobuyuki Hirano, chairman of the Japanese Bankers Association and president of Mitsubishi UFJ Financial Group Inc., has warned that financial institutions would lose their financial strength if the ultra-easy policy is kept in place for a long period — a scenario that could possibly cause problems in the functioning of the financial system.

Financial industry officials and market participants are keeping close tabs on what Kuroda will say at a press conference to be held on Thursday, after the end of the Policy Board meeting, sources said.