Talking Points:
- The Bank of Japan bought modestly fewer government bonds at its regular operation Wednesday
- It’s highly unlikely that this really represents any monetary tightening at all in the grander scheme
- However, the Japanese Yen picked up on it nevertheless
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The Japanese Yen got a boost against the US Dollar Wednesday on news that the Bank of Japan had bought ever-so-slightly fewer bonds in its regular market operation than it did at the last one,
Admittedly the change was extremely small by the standard of these matters. The BoJ bought JPY70 billion ($US 750 million) of bonds maturing in more than 25 years, down from JPY80 billion at its last operation on February 23. Its buying at all other maturities was utterly unchanged.
And yet the Japanese Yen headed higher right after the BoJ made this announcement.
And this action underscores the somewhat febrile market atmosphere over the Yen right now. The Bank of Japan’s balance sheet has been bloated by stimulus activities and liquidity management to the point where it rivals Japan’s annual Gross Domestic Product. There has in consequence been widespread speculation that the central bank will need to curtail its stimulus program before inflation reaches that sustainable, 2%-annualized level which is the stated point at which monetary accommodation will be withdrawn.
However it cannot be stressed too often that there is no official confirmation of this belief. Indeed the re-appointment of Haurhiko Kuroda as BoJ Governor would seem to militate heavily against it. Kuroda is the stimulus program’s architect. He has not deviated one iota from the position that it remains in place. After all, inflation is certainly much higher than it was in Japan, but it is nowhere near the target level.
That said belief in an early wind-down clearly persists in some market quarters. The Yen spiked up on a similarly miniscule reduction in bond purchases back in January. Now as then we can probably expect some official commentary in due course to the effect that the BoJ is not scaling back its stimulus. Now as then we can probably expect those who think that it is to ignore such commentary.
--- Written by David Cottle, DailyFX Research
Follow David on Twitter: @DavidCottleFX or use the Comments section below to get in touch!
