Kuroda Sees Yield-Curve Control Allowing BOJ to Buy Fewer JGBsBy and
Central bank chief says bond market is functioning quite well
He says ETF purchases have worked in reducing risk premiums
Bank of Japan Governor Haruhiko Kuroda said that despite some signs of reduced liquidity, the market for Japanese government bonds is "functioning quite well" and actually makes it easier for the BOJ to manage yields with fewer purchases.
“Since JGBs remaining in the market is going to decline, that means that with one unit of JGB purchase, the impact on the interest rate could be bigger," Kuroda said in an interview on Bloomberg Television recorded on Friday in Jackson Hole, Wyoming. "So that in coming months there will be less and less need to purchase JGBs in order to maintain the yield curve.”
He also brushed off suggestions that the central bank could run out of bonds to buy, noting that having snapped up 40 percent of JGBs outstanding, there were still 60 percent left for the BOJ.
His comments come amid speculation that the central bank may scale back its bond buying this week after the debt market rallied, undeterred by a second reduction this month in the BOJ’s purchases of 5-to-10 year securities.
The benchmark yield fell on Friday, approaching the BOJ’s target of around zero percent, as traders shrugged off the central bank’s operation.
The BOJ is scheduled to buy bonds with 1-to-3 and 3-to-5 year maturities on Monday, followed by purchases in the 5-to-10, 10-25 and over-25 year sectors on Wednesday.
"Despite the wide fluctuation of long-term interest rates in Europe and the United States, Japanese 10-year JGB interest rate has been very flat, around 0 percent," Kuroda said in the interview. "And in that sense, yield-curve control has been well managed."
Kuroda shifted the BOJ in September last year from a focus on the quantity of purchases to a program that also sought to manage the yield curve by pinning short-term rates around -0.1 percent and longer-term rates about 0 percent.
The central bank still maintains a guideline for purchasing JGBs so that the amount outstanding in its holdings increases by about 80 trillion yen annually ($730 billion). Kuroda acknowledged earlier this year that the pace of purchases had actually slowed to about 60 trillion yen.
Asked about potential changes to the yield targets, Kuroda said: "At this stage I don’t think we have to move upward or downward." The policy board could decide to change this in the future, depending on economic and financial conditions, he added.
While JGBs make up the biggest part of the BOJ’s stimulus, it also buys large amounts of exchange-traded funds, with an aim of increasing amounts outstanding by 6 trillion yen annually.
Kuroda reiterated that the purpose of this is to reduce risk premiums, and that the program didn’t need to be increased. Critics of the ETF purchases argue that the BOJ should buy fewer stocks.
"We have successfully reduced risk premium, because now companies are investing, investing quite strongly," he said. "So in that sense it has been successful, but I don’t think at this stage we can expand this program."
— With assistance by Chikako Mogi