The Bank of Japan (BOJ) has embarked on an unprecedented pace of purchasing government bonds this year, a move that potentially contributes to the recent decision allowing yield fluctuations within a broader range. This strategic adjustment aims to alleviate the mounting pressure on controlling long-term interest rates.
Despite expanding the yield curve control range in December of the previous year and again last month, the BOJ’s bond purchasing volume has not experienced a significant reduction. Each policy adjustment has seen an escalation in bond buying efforts, raising questions about the central bank‘s pace of policy adaptation. The challenge it faces is whether its actions in policy adjustment are timely and vigorous enough to prevent investors from driving yields excessively high.
Naomi Muguruma, Chief Fixed Income Strategist at Mitsubishi UFJ Morgan Stanley Securities, suggested that if the Bank of Japan were to diminish its bond purchases, market participants might interpret it as a signal of nearing an exit from its accommodative policies. This interpretation could potentially lead to elevated yields and necessitate an increased purchase volume from the BOJ.
