Bank Of Japan Delays Bond Purchase Reduction

The Bank of Japan delayed its normalization of policy on Friday as policymakers decided to unveil a detailed plan for reducing its bond purchase programme at its upcoming meeting in July.

At the June meeting, the policy board governed by Ueda Kazuo, decided to conduct purchases of Japanese government bonds, CP, and corporate bonds in accordance with the decision made at the March meeting but voted 8-1 to cut its purchases thereafter to ensure that long-term interest rates would be formed more freely in financial markets.

Markets widely expected the bank to scale back its bond purchase programme at the current June meeting.

The bank said it will collect views from market participants and, at the next policy meeting, it will decide on a detailed plan for the reduction of its purchase amount during the next one to two years or so.

Currently, the bank purchases around JPY 6 trillion bonds per month.

The board today unanimously decided to maintain the uncollateralized overnight call rate to remain at around 0 to 0.1 percent.

Previously, the bank had raised its interest rates in March, which was the first such action in 17 years and became the world’s last central bank to end negative rates amid signs that inflation is strengthening.

Capital Economics’ economist Marcel Thieliant said the bank is expected to hike its policy rate to 0.3 percent by July but a more rapid slowdown in underlying inflation than the Board is anticipating will forestall any further tightening ahead.