BOJ mulls seeking stability through transparency
Advance notice of purchase schedule would enhance communication
KEIDAI SANDA, Nikkei staff writer
TOKYO -- The Bank of Japan is considering providing the dates of each month's bond-buying operations ahead of time in hopes of limiting uncertainty-induced yield gyrations, which have complicated its goal of keeping interest rates on an even keel.
Such a move, which could be implemented for next month's purchases, would make it easier for the brokerages that handle Japanese government bonds to manage their inventories. Announcing the number of operations each month in advance would also allay worries about a sudden drop-off in buying, reducing the risk of a surge in long-term interest rates.
At the end of each month, the BOJ currently provides a range of possibilities for the number and size of the following month's purchases. But after the central bank conducted fewer purchases in January than markets had expected, fears of softer demand sent long rates soaring.
When the central bank first began steering interest rates, some BOJ insiders warned that the bank would be unable to do so effectively if it showed its hand. But this stance itself has become fodder for bond traders. That the central bank is now considering providing more information goes to show how poorly it has communicated with markets.
The BOJ became more amenable to such a change after last September's comprehensive policy review. Switching the goal from buying 80 trillion yen ($705 billion) in JGBs per year to keeping the yield on benchmark 10-year JGBs around zero reduced the need for the BOJ to closely monitor the money supply. Having the option to respond to interest rate fluctuations with emergency bond purchases even on days when no operations are scheduled likely made the central bank more willing to consider making its purchase dates public.
Buying operations "are not an indicator of future policy," Gov. Haruhiko Kuroda stressed in a news conference Jan. 31. Yet markets remain skeptical of the bank's commitment, a factor that contributed to the market chaos seen Feb. 3, when long rates surged and the BOJ responded with a fixed-rate operation, offering to buy an unlimited number of bonds at a predetermined yield.
A bond dealer welcomed the news that the central bank is considering providing operation dates, saying the move would give peace of mind when buying JGBs. But the additional information could become a trading catalyst as well. There is no guarantee that the change would give the BOJ the stability it seeks.