The Federal Reserve is raising interest rates and the European Central Bank is considering buying fewer bonds, but the Bank of Japan will stick to its easing guns forever, right?
Wrong. In fact, Japan’s central bank’s latest moves make it seem like it is tightening policy, too.
The BOJ bought just ¥7.7 trillion ($68.8 billion) worth of Japanese government bonds in September, according to J.P. Morgan. The figure represents its smallest monthly amount of outright buying, which doesn’t account for maturing bonds, since October 2014.
That looks a lot like tapering.
Since the rollout of the BOJ’s “yield curve control” policy last year, the central bank has been able to buy as many or as few bonds as it needs to keep its 10-year government-bond yield near zero, which investors have interpreted as a range between negative 0.1% and 0.1%. So when the 10-year yield doesn’t move dramatically, the central bank doesn’t have to buy as many bonds
That’s what happened last month, according to Noriko Miyoshi, head of fixed income at Simplex Asset Management in Tokyo. “The market has understood the intention of the BOJ,” she said.
While the BOJ has slowed its bond buys this year, its leader has been quick to dispel any chatter about a shift in policy. Gov. Haruhiko Kuroda said Sunday that aggressive easing will remain in place as Japan’s inflation rate is still a long way from reaching the central bank’s 2% target.
The numbers, however, tell a different story. The central bank is currently on pace to buy some ¥60 trillion worth of bonds this year after adjusting for about ¥40 trillion worth of maturing JGBs, according to J.P. Morgan. Officially, though, the Bank of Japan continues to pledge it will buy government bonds at an annual rate of ¥80 trillion....MORE