Mar 31, 2018 (Japan Times) - 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.â€
The BOJ is on track for net bond purchases well below ¥60 trillion ($569 billion) in fiscal 2017. It is expected to keep buying ranges unchanged for a second month when it announced its April plan Friday. The central bank has an ¥80 trillion annual guideline under a policy in which it buys government debt to keep 10-year bond yields around zero percent.
Despite the steady reduction in purchase amounts, the benchmark 10-year yield has moved largely within target this fiscal year, with a few upward blips. But the central bank unintentionally kicked off a rally in the yen on Jan. 9 when it unexpectedly cut purchases of long-term bonds, sparking a slew of bets on speculation the reduction signaled its ultra-loose policy could end sooner than expected.
