Halister News

(Bloomberg) -- The Bank of Japan’s reduced bond purchases in the 5-to-10-year sector is consistent with its desire to cut back whenever markets stabilize, according to Takenobu Nakashima, quantitative strategist at Nomura Securities Co. in Tokyo.

• Biggest reason for purchase cut is the BOJ wants to maintain scope for purchase expansion when 10-year yields rise in the future
  • Another factor is that the bank wants to gradually reduce buying
  • NOTE: BOJ offers to buy 440b yen in 5-to-10 year bonds vs 470b prior
• It takes ”considerable courage” to lower it below 450b but now is the best time to do it before September when markets may move on BOJ and Fed meetings
• BOJ may have judged market reaction today to be muted given the lack of response compared to last month when it reduced buying to 470b from 500b
• Lack of market reaction is due to lack of momentum for yields to rise given low volatility in Japan and the U.S.
  • Also due to lack of sellers as the 10-year zone is favored by investors seeking to park money compared to the BOJ’s reserve that carries a 0.1% charge

--With assistance from Chikako Mogi. To contact the reporter on this story: Kazumi Miura in Tokyo at kmiura1@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui