Economic variables push Bank of Japan to buy bonds at record pace

The Bank of Japan is buying government bonds at record pace this year, while potentially pushing its latest move to allow greater yield movements to ease pressure on its control over long-term interest rates.

Doubling the actual cap on benchmark yields in December and again last month did not significantly curtail the Bank of Japan’s bond purchase, raising the possibility that further changes would be needed to help curb purchases.

The increase in purchases after each policy adjustment also raises the question of whether the Bank of Japan has moved too slowly to adjust its policies, given the extent to which its response is required to prevent investors from pushing returns too far.

Bloomberg calculations indicate that the total value of purchases will be 124.6 trillion yen ($857 billion) unless market pressure subsides and the Bank of Japan can reduce its operations.

Foreign investors led the sale of Japan’s 10-year government bonds in July, disposing of 1.36 trillion yen bonds, the biggest figure since January, Japan’s Securities Traders Association data showed on Monday.

“If the Bank of Japan reduces the amount it buys, market participants take this as a sign that it is close to getting out of politics,” said Naomi Muguroma, chief fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co in Tokyo.