Photographer: Akio Kon/Bloomberg

BOJ's Massive Bond Holdings Pace Seen Expanding Even More Slowly in 2018

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 yen ($392 billion) next year, according to the average estimate in the survey. That’s well below the BOJ’s 80 trillion yen annual guideline and a considerable drop from the 61 trillion yen increase that was seen in the 12 months through the end of November, according to calculations by Bloomberg.

Under Governor 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.

See here for the full survey results

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 target now and even its own forecasts don’t indicate the goal will be reached next year. Central bank officials have consistently said that they will continue with their current policies to boost inflation toward the target.

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 by Bloomberg forecast any policy changes at the next BOJ board meeting on Dec. 20-21.

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