BOJ will reduce purchases of government bonds

Tokyo, June 14 (Jiji Press) — Policymakers at the Bank of Japan voted Friday to reduce the central bank’s purchase amount of Japanese government bonds as part of efforts to normalize its monetary policy.

The move is intended to “ensure that long-term interest rates will be formed more freely in financial markets,” the BOJ said in a statement after its two-day monetary policy meeting.

The BOJ board voted 8-1 to reduce the purchase amount. The BOJ will decide on a detailed plan for the reduction over the next one to two years at its next policy meeting in July.

“We think the reduction will be of a reasonable size,” BOJ Governor Kazuo Ueda told a news conference after Friday’s policy meeting.

The central bank is currently buying government bonds at a monthly pace of about 6 trillion yen. It owns as much as 600 trillion yen worth of government bonds as a result of the massive monetary easing policy launched in 2013.

Some have said that a reduction in bond purchases by the BOJ would help stem a rapid depreciation of the yen by putting upward pressure on Japanese long-term interest rates.

The dollar climbed above ¥160 on April 29, three days after Ueda made comments indicating he was not serious about tackling the weak yen. The fall of the yen prompted the Japanese monetary authorities to intervene in the currency markets to support the currency.

In currency trading in Tokyo, the dollar jumped above ¥158 on Friday after the BOJ failed to present a detailed plan for reducing bond purchases. The yield on the benchmark 10-year government bond fell to a one-month low of 0.915 percent.

The BOJ’s board of directors voted unanimously on Friday to keep short-term interest rates stable within a range of zero to 0.1 percent.

Ueda told the day’s press conference that the recent rapid depreciation of the yen is a factor behind the price increases and that this will be closely watched by the BOJ. The governor also said that due to the weaker yen and other factors, “there are signs of a slight renewed increase in import prices.”

At its March meeting, the BOJ ended its negative interest rate policy and raised interest rates for the first time in 17 years, starting the process of normalizing monetary policy.