The Bank of Japan’s expansion of record stimulus today may see it buy every new bond the government issues.
The BOJ said it plans to buy 8 trillion to 12 trillion yen ($108 billion) of Japanese government bonds per month under stepped-up stimulus it announced today. That gives Governor Haruhiko Kuroda leeway to soak up the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month.
The central bank is already the largest single holder of Japan’s bonds, and the scale of its buying could fuel concerns it is underwriting deficits of a nation with the heaviest debt burden. The BOJ could end up owning half of the JGB market by as early as in 2018, according to Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.
“Kuroda knows when to go ALL in,” Okubo wrote in a note. “The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.”
The unprecedented efforts to stoke inflation could scare bond investors, said Chotaro Morita, the chief rates strategist in Tokyo at SMBC Nikko Securities Inc.
“Today’s action shows Kuroda’s strong commitment to reach the 2 percent target,” Morita said. “That means the BOJ will keep expanding stimulus, weakening the yen and eventually causing inflation. That is scary for bond dealers.”
Kuroda said earlier this month that while the BOJ holds only about 20 percent of Japan’s outstanding government bonds, the Bank of England holds approximately 40 percent of U.K. government debt.