The Bank of Japan remains convinced it doesn’t need to take any further measures to improve the functioning of the government debt market for now after offering more clarity on its bond-buying operations, according to people familiar with the matter.
Ahead of a two-day policy meeting through Friday, central bank officials said it is still too early to judge whether tweaks made to the central bank’s policy framework in March have been ineffective in improving the functioning of the Japanese government bond (JGB) market.
The officials see the greater transparency on its operations helping ensure yields are more closely aligned with market conditions by limiting investors’ reactions to its own purchases, the people added.
The BOJ started its meeting Thursday, hours after a U.S. Federal Reserve gathering, with a majority of economists expecting the bank to extend its special COVID-19 funding program to help struggling businesses, while keeping its main policy levers untouched.
The nine-member board is supportive of the extension but hasn’t decided yet whether the final decision should be made this week or at a July meeting, according to the people.
Since the March policy review, which was partly aimed at spurring more fluctuations in the bond market, a lack of movement in 10-year JGB yields has generated criticism that the BOJ hasn’t done enough to improve the pricing function of the bond market.
At the March meeting, the central bank said its movement range around its 10-year yield target was about 0.25 percentage point either side of zero. Since then it has also started specifying exact purchase amounts for its monthly bond-buying operations instead of providing a range.
Those moves were designed to ensure market participants decide prices by themselves and to avoid uncertainty over BOJ operations providing trading cues, the people said.
The BOJ’s monthly bond-buying plan is not aimed at generating volatility in the market, some of the people said.
But in May, the 10-year yield moved within a range of just two basis points, according to data compiled by Bloomberg.
Half of economists polled by Bloomberg this month said the bank should do more to improve the functioning of the market.
The officials see the lack of movement in yields until last week stemming from a lack of strong trading catalysts in the global bond market, the people said.
The fall in Japan’s benchmark yields to the lowest level since January following a decline in U.S. yields at the end of last week supports the BOJ’s view that its measures are ensuring changes in yields are following market conditions, they said.
The BOJ still remains determined to act to keep yields within its range when necessary, the people added.
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