Japan’s bond market wants BOJ to purchase more short-term notes

‘BOJ Dominates’

“The BOJ dominates asset markets for better or worse,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in a post on Twitter. “Watch JGBs, the yen and the exodus from each.”

Japan’s outstanding debt was 991.6 trillion yen at the end of March, a ministry report showed this month. It’s projected to reach 245% of gross domestic product this year, according to an International Monetary Fund estimate, the highest ratio in the world.

Minutes released this week of the BOJ’s April 26 meeting showed divisions on the policy board, where “a few” members see difficulties meeting a 2% price goal by the end of March 2016. One member said the bond market could become unstable again, while others said that swings in financial markets had been triggered by perceptions that the BOJ had conflicting goals -- trying to push down interest rates while pursuing inflation.

There are no signs investors have “excessively bullish expectations,” Kuroda said in Tokyo on May 26. He cited an April BOJ report indicating rates could rise by between one and three percentage points in an improving economy without causing financial instability.

Kuroda’s BOJ has shown it will step into bond markets to stem volatility. When JGB yields touched 1% on May 23 and a plunge in bond futures set off a circuit breaker on the stock exchange, the central bank supplied 2 trillion yen to the financial system, its second such market-calming infusion this month.

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