Central Bank of Japan reduces public debt purchase program – Observer

The Japanese central bank announced this Thursday a cut in the purchase of public debt securities, in another step towards progressive monetary normalization, after an increase in interest rates in March.

The Bank of Japan (BoJ) decided, by eight votes to one, to reduce debt purchases “to ensure that yields on long-term bonds are formed more freely in financial markets”.

The central bank did not disclose details about the cut in purchasing volume, which is currently around 6 billion yen (around 35.4 billion euros), according to a statement published at the end of the institution’s two-day monthly meeting.

Or BoJ, who holds more than half of the public debt securities in circulationcalled a meeting of the internal group responsible for bond markets, with a date yet to be defined, during which “future conduct” will be discussed.

The institution promised to listen to debt market participants and other experts and prepare, before the next monthly meeting, scheduled for July 30 and 31, “a detailed plan to reduce the amount of purchases for the next one or two years”.

The decision to reduce bond purchases was welcomed by financial markets as another step towards progressive monetary normalization, after more than a decade of negative interest rates.

The Tokyo stock exchange’s main index, the Nikkei, which remained in negative territory during the first part of the morning session, rose 0.7% in just 15 minutes, following the BoJ’s announcement.

Still, the chief economist at consultancy Mizuho Securities, Shunsuke Kobayashi, told the France-Presse news agency that the measure “is a disillusionment for those hoping for more clarity” on the extent of the reduction.

The decision comes at a time when the yield on long-term Japanese sovereign debt was at its highest levels in more than a decade, raising concerns on borrowing costs in Japan.

On the other hand, the central bank chose to maintain the reference interest rate in the short term by 0.1%, well below other major world economies.

The BoJ argued that the Japanese economy has presented signs of weaknessdespite a moderate recovery, in a context in which both consumption, exports and production remain stagnant.

Japan’s central bank does not rule out further interest rate hikes to curb inflation

The central bank also alluded to the current inflation trend in the archipelago, which has remained in a range between 2% and 2.5% in recent months, while employment and wages have risen only moderately.

“About the BoJ there are no good options” available at the moment, said, in a note, Stefan Angrick, economist at Moody’s Analytics, because “the Japanese economy is not doing well”, with domestic demand remaining weak because Salaries are not keeping up with inflation.

Japan ready to take necessary measures to stop the fall of the yen