Bank of Japan tweaks JGB purchase plan; futures fall on speculation of less buying

TOKYO (Reuters) - The Bank of Japan tweaked its monthly government bond buying plan on Friday, stoking speculation that it may further reduce its massive bond buying and pushing down the price of benchmark 10-year Japanese government bond futures.

FILE PHOTO: A Japanese flag flutters atop the Bank of Japan building in Tokyo, Japan, September 21, 2016. REUTERS/Toru Hanai/File Photo

The BOJ reduced the frequency of its buying in one to three, three to five, and five to 10-year bonds to five times in September from six times in August.

On the other hand, it increased the maximum amount of its buying in each operation in these maturities.

It said it would buy 300 to 600 billion yen ($2.7 billion - $5.4 billion) of five to 10-year JGBs in each operation, compared to its August plan of 300 to 500 billion yen.

It raised the upper buying limit for one- to three-year bonds and three- to five-year bonds to 400 billion and 450 billion yen from 300 and 350 billion yen, respectively.

On the surface, the change seems technical: there are fewer business days in September when the BOJ can conduct its buying operations.

But financial markets are highly sensitive to any changes in its huge stimulus programme given growing uncertainty over how much longer it can sustain its current ultra-easy policy.

The benchmark 10-year JGB futures JGBv1 dropped 0.10 point in evening trade, on speculation the plan would lead to a reduction in its bond buying.

“It’s too early to say whether the BOJ intends to reduce its bond buying. We will have to look at how much it will buy at its first operation next month,” said Keiko Onogi, senior JGB strategist at Daiwa Securities.

The BOJ said it will conduct its first buying in the five to ten year zone on Thursday.

In August the BOJ bought 400 billion yen, the centre point of its target buying amount, of five to 10-year maturities in each of its six scheduled operations, for a total of 2.4 trillion yen.

If the BOJ sets its buying in September at 450 billion yen, the middle point of the new range, it would amount to monthly buying of 2.25 trillion yen.

Equally the BOJ’s buying in 3-5 year bonds will be reduced to 1.75 trillion yen from 1.8 trillion yen if the BOJ sets its buying at the middle of the range at 350 billion yen.

The BOJ said it plans to buy one- to three- and three- to five-year zones on Tuesday.

The BOJ has been gradually slowing the pace of its bond buying as its bond holdings reached more than 40 percent of the entire market, leading to shortage of bonds available for investors and fall in the market liquidity.

Last month the BOJ said it would allow the 10-year JGB yield to move in a wider range than before but the market’s volatility has quickly dwindled since then.

($1 = 110.7500 yen)

Reporting by Tomo Uetake and Hideyuki Sano; Editing by Kim Coghill