BoJ scaled up its purchases of JGB - Nomura

Analysts at Nomura explained that the BOJ increased its 3-5yr JGB purchases for the first time since 12 July last year.

Key Quotes:

"It scaled up its purchases to JPY330bn from JPY300bn at the previous auction. JGB 10yr yields are approaching 0.10% and BOJ action in the JGB market has been expected, although the method of intervention was not clear (see “What to watch: after Kuroda’s communication mistake”, 29 January 2018). When the BOJ previously increased its 3-5yr JGB purchases, 5yr yields stayed at around -3bp. The latest yield level is lower at around -7bp, suggesting the BOJ’s assessment on the desired level of medium-term JGB yields is largely unchanged, or even slightly lower (although Governor Kuroda repeated that daily operations do not suggest any policy stance changes, see “BOJ Review: Dovish tone unchanged”, 23 January 2018). The BOJ also kept unchanged the range of its JGB purchase amount for February."

"While the BOJ slowed its 10-25yr and 25yr+ JGB purchases on 9 January to JPY190bn and JPY80bn respectively, the purchase range remains unchanged (JPY150-250bn and JPY50-150bn respectively, see “Further BOJ stealth tapering and JPY”, 9 January 2018). This unchanged planned range is no surprise, as financial markets reacted negatively to its tapering decision in early January (Figure 2). On top of the increase in 3- 5yr JGB purchases, the unchanged February schedule may marginally ease market concerns about tapering."

"The timing and level of fixed price operations will remain crucial, as they can send a strong and clear message about the BOJ’s views on the 10yr yield target (see “BOJ policy normalization and JPY – Part III”, 10 January 2018). In early July 2017, the BOJ also needed to increase its 5-10yr JGB purchases (rinban), and announced the fixed price operations."

"If the FOMC sends foreign yields higher this evening by taking a hawkish stance, the BOJ will need to take further action to calm markets. BOJ Governor Kuroda repeated today that there is long way to go to achieve the 2% price target and the Bank will persist in its easing. After his communication mistake in Davos, he repeated that inflation was on the weak side at the moment. However, to show the BOJ’s unchanged dovish stance and help USD/JPY recover, bolder action (fixed price operations) may be necessary. "