Bank of Japan's bid to taper by stealth made tougher by supercharged yen

The Bank of Japan is finding out just how hard it is to be stealthy — when everyone is looking right at you.

The central bank looks set to end this fiscal year well behind on its target for government bond purchases. But having inadvertently sparked a yen rally in January, a repeat of this "stealth taper" of monetary policy in 2018 is going to prove to be a much tougher challenge.

"The hurdle is higher this year than last year when the BOJ was able to taper stealthily without a problem," said Naoya Oshikubo, rates strategist at Barclays Securities Japan Ltd. "The main scenario is for the BOJ to keep reducing in line with a drop in government debt issuance in fiscal 2018. But unlike last year they are more sensitive to the currency, so cuts will be gradual and cautiously timed with an eye on that."