Some market players urge BOJ to halve bond buying as it eyes tapering

By Leika Kihara

TOKYO (Reuters) – Some market players called on the Bank of Japan to slow its bond buying to roughly half the current pace under a scheduled tapering plan due out this month, the central bank said on Tuesday.

The request was made in a survey the BOJ conducted of bond market participants to collect their views on how the central bank should throttle back its huge bond purchases, and trim its nearly $5 trillion balance sheet.

The BOJ has said it will lay out a detailed bond taper plan at its July 30-31 policy meeting that covers a period of around one to two years.

The move would follow its decision in March to end eight years of negative interest rates, and underscore its resolve to steadily phase out its massive stimulus.

Some respondents urged the BOJ to reduce its monthly government bond purchases to around 2 trillion to 3 trillion yen ($12.4-$18.7 billion), from the current 6 trillion yen, a summary of the survey released by the central bank showed.

Those favouring a milder approach urged the BOJ to buy 4 trillion yen per month, or initially trim monthly buying by just one trillion yen before moving to bigger cuts.

Others wanted a faster pace of tapering, with one saying the BOJ should buy just 1 trillion to 2 trillion yen per month. Yet another urged the central bank to lay out a path to eventually stop buying bonds altogether, the summary showed.

The respondents diverged on the speed of tapering with some calling on the BOJ to do so at a “set, swift pace,” while others urged it to “gradually reduce buying in the course of around two years,” the summary showed.

The findings from the survey were released as part of a briefing material the BOJ prepared for a two-day meeting with bond market participants that kicked off on Tuesday.

The outcome of the meeting will be taken into account when the BOJ finalises its taper plan this month. Governor Kazuo Ueda has said the amount of taper will be “sizeable,” without offering details.

Japanese bond market players surveyed by Reuters earlier this month said they expect the BOJ to slow monthly bond buying to around 4.65 trillion yen on average in the initial year, and to 3.55 trillion yen in the second year.

The BOJ, which still keeps interest rates at near-zero, lags behind its global counterparts in whittling down a crisis-era monetary support as it focused on supporting a fragile economy.

After buying bonds aggressively for a decade in a bid to reflate growth, the BOJ has seen its bond holdings balloon to 576 trillion yen – roughly half of total Japanese government bonds (JGB) sold in the market.

($1 = 160.8300 yen)

(Reporting by Leika Kihara; Editing by Christian Schmollinger, Louise Heavens and Kim Coghill)


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