* BOJ operations announcement triggers sharp market moves
* More frequent purchases, dates would be helpful-strategist
By Lisa Twaronite
TOKYO, April 11 A week after the Bank of Japan
said it would embark on the world's most intense monetary
stimulus, the Japanese government bond market braced itself for
wild swings until the central bank fine-tunes its purchasing
operations and communications.
JGBs have been highly volatile since the BOJ said a week ago
that it will pump about $1.4 trillion into the economy in less
than two years, in an unprecedented monetary expansion for which
there is no playbook.
"Effectively, by announcing a massive, bazooka-style
monetary easing, they've actually managed to increase risk
premia, by adding volatility to the market," said Shogo Fujita,
chief Japan bond strategist at Bank of America Merrill Lynch.
Thursday's market moves underscored the power of the central
bank to trigger significant market waves with simple operational
Ten-year JGB futures, which had plunged on
hedge-selling ahead of a sale of 30-year bonds, sharply
recovered after the BOJ announced details of its second and
third operations under its new easing regime. Futures ended just
four ticks shy of their session high, up 0.57 point at 144.73,
and far above their morning low of 143.40.
Cash bonds also gyrated, with the yield on the benchmark
10-year bonds falling as low as 0.550 percent
after the BOJ's operations announcement, down from their morning
high of 0.630 percent, which matched the previous session's
The benchmark yield plunged to a record low of 0.315 percent
on Friday, when the 30-day implied JGB volatility hit
a 5.32, its highest since March 2011 earthquake, tsunami and
The central bank has already taken the first steps toward
establishing more orderly market operations. Senior BOJ
officials met and exchanged views with financial institutions
and institutional investors on Thursday afternoon on the outlook
for market operations.
Since the BOJ has committed to buying 7.5 trillion yen ($76
billion) of bonds each month -- about 1.4 percent of Japan's
gross domestic product -- Governor Haruhiko Kuroda told
reporters on Wednesday that the bond market reaction was
understandable, and said he will monitor price moves carefully.
With the central bank pledging to make purchases that will
total about 70 percent of newly issued debt, strategists and
market participants awaited more details.
"Smaller amounts more often and announcing the dates would
be helpful. If you know for sure when the operations are coming,
you can manage your inventory more smoothly," said Neale
Vincent, strategist at Nomura Securities in Tokyo.
"They could be more flexible in the pace of purchases. They
want investors to shift out of the market quickly, whereas they
want to buy bonds on a monthly schedule. So it's somewhat of a
mismatch," he added.
Vincent also suggested the BOJ could adjust the weightings
between the sectors, because it looks like they are buying too
many 5- and 10-year JGBs, relative to paper under 5-years and
"I think the BOJ will clarify more its operations going
forward, because if you look at what they've done over the last
week, they're effectively going to own the whole JGB yield
curve," Bank of America Merrill Lynch's Fujita.
But until then, he said, the volatile market moves speak for
"Effectively, what happened was the market told the BOJ,
there's too much noise and less transparency here, and the size
of what you're going to purchase is massive, and we won't be
able to warehouse that amount of bonds for you," he said.