Japan upsizes bond buys to US$4.1b

But BoJ’s weak policy outlook poses a threat.

BofAML reported that Bank of Japan (BoJ) increased its purchases of 5 to 10-year Japanese government bond (JGB), rising from US$3.73b to US$4.1b.

The 5 to 10-year increase in bond purchases also followed a rise in buying of 3 to 5-year JGBs from US$2.73 to US$3b on January 31.

Further, BoJ conducted fixed-rate operation to buy unlimited amount of 10-year JGB at 0.11%.

“The fact that the BoJ simultaneously announced fixed-rate bond buying operations in addition to upsizing its 5-10yr bond purchases suggests that the BoJ wanted to send a strong and clear message that the de facto ceiling for the 10yr yield target remains at 0.1%. At the same time, the consecutive increase in JGB purchase amounts shows the BoJ's sensitivity to tapering concerns, especially in the FX markets,” BofAML said.

However, according to BofAML, BoJ’s lack of clarity around its succession has heightened uncertainty around its policy outlook.

“We think one of three things will have to happen for the hawkish narrative around the BoJ to change on account of Japan factors: 1) Nomination of an aggressive dove such as Etsuro Honda to the BoJ leadership; 2) Strengthening of BoJ communications/forward guidance, that clarifies the conditions for further policy normalization; or 3) A meaningful deceleration in domestic data (especially inflation),” Izumi Devalier, Japan economist of BofAML, said.