Bank of Japan bond purchases go smoothly

By Eleanor Warnock

TOKYO (MarketWatch) — A Bank of Japan bond-buying operation Monday went smoothly, analysts said, despite lingering hesitation in the market as participants adjust to the bank’s new easing measures.

The central bank said financial firms put in bids to sell 2.05 trillion yen ($20.8 billion) in Japanese government bonds maturing in five to 10 years, double the ¥1 trillion USDJPY +0.44%  amount the bank offered to buy.

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Financial firms also put in ¥633.7 billion in bids to sell JGBs maturing in more than 10 years, over triple the ¥200 billion the BOJ said it would buy.

The purchases are the first since the BOJ announced an unexpected deluge of easing last week in its bid to achieve 2% inflation in two years.

The operation also marked the first time the BOJ bought JGBs with more than three years remaining maturity as part of its easing measures, and market participants are focused on how the bank’s purchases of longer-term sovereign debt will affect supply and demand.

“The operation today took place with no one really sure what levels are fair value, so it’s natural there was a bit of a tail” indicating some hesitation, said RBS Securities chief rates strategist Akito Fukunaga.

Reuters

The Tokyo Stock Exchange temporarily halted trading of lead 10-year JGB futures as the contract climbed to its daily price limit, after the result was stronger than some market expectations, analysts said. The 10-year JGB yield also fell as low as 0.440%, compared with 0.490% at the midday close.

Mr. Fukunaga said the 5- to 10-year sector, where the bank is buying the most from the market this month, will outperform, though intense price swings should continue as market participants try to confirm supply and demand conditions under greater easing from the BOJ.

The bank will purchase a total of ¥6.2 trillion in JGBs of all maturities this month, including floating-rate notes at a total of five buying operations.

The BOJ said last week it will increase the amount of its longer-term JGB holdings from ¥89 trillion at the end of December to ¥190 trillion in two years.